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Proposed Tax Reform Stands to Impact Equity and Performance-Based Compensation

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Re: Proposed Tax Reform Stands to Impact Equity and Performance-Based Compensation

#101

Post by matt4077 »

Pyxl101 wrote: post #44
weaksauce wrote: post #36

Earlier quoted context omitted.

These grandfather clauses irk me... if the policy is not good enough to stand on its own then it should not be policy.

Ex post facto laws are anathema.

criminal law != civil law. And the law in fact doesn't apply retroactively, but it would apply to events in the future, that were determined in the past, based on certain assumptions.

Yes, the only reason the government is hiding time machines from us is their inability to finish the tax laws that would apply :)

Analogy: If congress raises gas taxes (nobody said analogies have to be realistic), everyone would have to pay more at the pump. But that doesn't mean the tax is applied retroactively.

Re: Proposed Tax Reform Stands to Impact Equity and Performance-Based Compensation

#102

Post by matt4077 »

ajross wrote: post #18
shmerl wrote: post #11

> 409B does not appear to impact the taxation of incentive stock options (ISOs), which in conjunction with the repeal of the alternative minimum tax, would make ISOs more valuable So AMT is being repealed now?

Yes, which is sort of a shame. Frankly if you were serious about simplifying the tax code and reducing unfairness and asymmetry, you'd keep the AMT and throw out the existing income tax. But whatever: the AMT is an issue for upper middle class taxpayers, and particularly ones (like tech employees, and most particularly startup employees) who see lots of their income in big chunks like stock grants and option exercise…

I enjoy your thorough lack of strong emotions, and I agree that these drafts are special in that they are not obviously intended to harm anyone who isn't WASP.

But the opportunity costs of this futile exercise in trickle-down would seem to make this one of the worse policies from a utilitarian perspective.

$1.5 Trillion dollars (the self-imposed cost limit of the tax plan) divided by $40,000 (what givewell.org estimates to be the marginal cost of saving a life) = 37,000,000 lives.

That's obviously calculation, because those marginal costs would start to rise after the low-hanging fruits are picked, and you may want to think of some other ideas that could be realized with that sum.

But even if I'm off by an order of magnitude...wow.

Re: Proposed Tax Reform Stands to Impact Equity and Performance-Based Compensation

#103

Post by djrogers »

hedora wrote: post #87
dpiers wrote: post #24

Earlier quoted context omitted.

ISOs are priced at the 409a value, which can be 1/10th of the preferred share price. Generally speaking, the 409a value converges with the preferred price as the company is de-risked and moves closer to IPO.

The caps are based on the value of the ISO when it vests , not when it is granted. If you exceed the $100K limit, then the options revert to NQs (and would presumably be subject to retroactive withholding, under the new rules). This will hit companies that are within a few years of IPO particularly hard, since right now, they can use stock incentives as a significant recruitment tool, and large, unknown, multipliers…

This is nothing even close to regulatory capture. It may not be a good thing, but you can't just throw random terms at it and expect them to work...

This policy has a) nothing to do with regulators or a regulatory agency, and b) is not a result of a regulated industry subverting the agent of it's regulation.

Also, the 100k cap you're complaining about already exists. I'm not sure what your rant even means at this point.

Re: Proposed Tax Reform Stands to Impact Equity and Performance-Based Compensation

#104

Post by djrogers »

morgante wrote: post #26
dpiers wrote: post #24

Earlier quoted context omitted.

ISOs are priced at the 409a value, which can be 1/10th of the preferred share price. Generally speaking, the 409a value converges with the preferred price as the company is de-risked and moves closer to IPO.

Right, but for later-stage startups I can certainly imagine average employees hitting the exercise cap.

That cap already exists now and is untouched along with the rest of section 422.

Re: Proposed Tax Reform Stands to Impact Equity and Performance-Based Compensation

#105

Post by djrogers »

s73ver_ wrote: post #95
seattle_spring wrote: post #83

Earlier quoted context omitted.

You're right! Which is why getting rid of AMT will actually make it significantly easier.

I was referring to this part: "Similarly, awards with vesting triggers based on exit events such as an initial public offering or change-in-control would be taxable on grant unless they require the recipient to be employed through the liquidity date"

In my experience those vesting triggers are much less common than a fixed vesting schedule.

Re: Proposed Tax Reform Stands to Impact Equity and Performance-Based Compensation

#106

Post by myrandomcomment »

clairity wrote: post #29
ajross wrote: post #18

Earlier quoted context omitted.

Yes, which is sort of a shame. Frankly if you were serious about simplifying the tax code and reducing unfairness and asymmetry, you'd keep the AMT and throw out the existing income tax. But whatever: the AMT is an issue for upper middle class taxpayers, and particularly ones (like tech employees, and most particularly startup employees) who see lots of their income in big chunks like stock grants and option exercise…

you're right that it would be more fair to keep AMT, but that's only because of the complexity of the tax code with all of its deductions and loopholes. but i disagree that the tax plan is not designed to be dstructive. the bill is tax gerrymandering at it's finest--designed primarily to boost the republican party, it's cronies, and especcially trump himself, while punishing all others, including the poor and powerle…

AMT is completely not fair. It was not indexed to inflation which means that it has started to affect middle class taxes. Go look at why it was created. The fact is if you are rich you can work around it. If you are mid to upper middle class you to not have enough money to structure things to work around it. AMT penalizes the middle class in the more expensive states to live as the salaries are higher. It is 100% unfair.

Re: Proposed Tax Reform Stands to Impact Equity and Performance-Based Compensation

#107

Post by jonahhorowitz »

wpietri wrote: post #39
weaksauce wrote: post #36

Earlier quoted context omitted.

These grandfather clauses irk me... if the policy is not good enough to stand on its own then it should not be policy.

Not at all. It's a recognition that the people who made long-term arrangements under the old law shouldn't be punished for that. The safer people feel making commitments, the more we can pursue things that take time to pay off, which has broad societal benefits. And in practice, laws are much harder to change if you piss off a lot of people who didn't do anything wrong but now suddenly stand to lose big. As an exampl…

It would be totally reasonable to phase out the mortgage interest deduction over ~10 years, giving people time to plan and decide how they wanted to handle it. The cap is currently $1M, let's reduce it by $100k/yr. (or $50k/yr over 20 years)

Re: Proposed Tax Reform Stands to Impact Equity and Performance-Based Compensation

#108

Post by kemiller »

perfectstorm wrote: post #82
hkmurakami wrote: post #2

Overall I think average comp full time employees at eaely stage startups will be a big beneficiary. They won't hit the exercise threshold, AMT will be gone, and ISO tax benefits and 409A valuation will remain. One problem I see is that the extended exercises that are popular these days convert from ISO to NQOs, so I wonder what that treatment will be like. Contractors lose some flexibility over NQOs, but imho they we…

> AMT will be gone Trump is doing this to help himself. I read somewhere that he got hit pretty bad on AMT recently.

Even if he is, the AMT is a pretty spectacularly unfair tax that hits a lot of people it wasn’t meant to.

Re: Proposed Tax Reform Stands to Impact Equity and Performance-Based Compensation

#109

Post by banku_brougham »

Tjis tax plan is not likely to pass. It has major stakeholders as active opponents, and an impotant cadre of republican congress-people from coastal states. There’s plenty of reporting on Politco or Washington Post that outlines the difficult road ahead for this legislation.

Re: Proposed Tax Reform Stands to Impact Equity and Performance-Based Compensation

#110

Post by hkmurakami »

banku_brougham wrote: post #109

Tjis tax plan is not likely to pass. It has major stakeholders as active opponents, and an impotant cadre of republican congress-people from coastal states. There’s plenty of reporting on Politco or Washington Post that outlines the difficult road ahead for this legislation.

The GOP has high risk of losing control of one or both chambers of Congress in 2018 of they don't pass some kind of tax reform.

The contents are in flux but I'd happily wager on them passing something they can point to

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