Wow and I thought removing AMT was throwing folks with ISOs a bone.
Don’t Tax Options and RSUs Upon Vesting
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Re: Don’t Tax Options and RSUs Upon Vesting
#12Can someone explain how the taxable amount would be calculated if the company isn't listed on the stock market. My options are for value x per share. I would expect to pay taxes for y - x with y being the market value. How does the actual market value get established? Will that number just come from what was used when someone invested previously?
Fair Market Value determined by a 409a valuation.
Re: Don’t Tax Options and RSUs Upon Vesting
#13"But, sadly, I don’t think this is really about what makes sense. It is about politics." Clearly this proposal is targeted directly at private SV and tech companies. And the mortgage deduction and state tax write off proposals are targeted at California / NY. Outside of just a big FU from the Republicans to largely Democratic states what is the end game? E.g. - what are the Republicans actually negotiating for, assum…
I can't overstate how sad it would be if the goal of this change was plainly to stick to to Democrat states. It there is truly do much disdain that didn't boat well for the future as a united country.
Re: Don’t Tax Options and RSUs Upon Vesting
#14I'm 90% certain that "taxing stock options upon vest" only refers to non-qualified stock options. ISOs, which the majority of startup tech employees with incentive options get, would not be taxed upon vest.
RSUs and NQOs would fall under the new definition, and holders would be screwed. I just want to make sure we all have our definitions straight.
Re: Don’t Tax Options and RSUs Upon Vesting
#15> That should be a clear enough example to the lawmakers that vesting should not be a taxable event. Vesting has the unique property that before it occurs the shares are not yours and after it occurs, they clearly are (and can't be clawed back). If you don't tax vesting, are you going to instead wait until the shares are sold to tax them? That would be very easy to abuse. > If this provision becomes law, startup and…
> I really doubt that. The talent pool, networks, and legal infrastructure in the USA are second to none. That's not going to suddenly shift because of minute changes to tax law.
Working for a startup is already immensely risky. If there was a practically guaranteed bankruptcy risk as a result of appreciating stock options, no sane employee would work for a startup anymore-- they would all go work for the big companies offering liquid stock. That, to me, is a very profound impact on our industry.
Re: Don’t Tax Options and RSUs Upon Vesting
#16I think the way we do options in startups needs a more fundamental rethink. I wouldn't be too sad if the current system falls on its face.
I like Buffett's proposal from a few years ago. They don't grant stock, they simply pay cash (bonuses) and if employees want to buy in, it's their money, after all.
What's really needed is a way some group of insiders in a company can transfer shares among themselves or outsiders. This would probably take a big change in securities laws to create rules around how unaudited equities could be traded. But I keep seeing these stories about AMT, employees leaving who never vest, golden handcuffs, etc., it makes me think we need to make private company stock work more like public company stock, somehow.
Another thought: Zuckerberg has said a few times he doesn't think going public was as bad as people said it would be. Maybe the solution is for companies to become public earlier and have investors operate more like PIPE shops or activists who just hold big chunks of company stock?
Re: Don’t Tax Options and RSUs Upon Vesting
#17"But, sadly, I don’t think this is really about what makes sense. It is about politics." Clearly this proposal is targeted directly at private SV and tech companies. And the mortgage deduction and state tax write off proposals are targeted at California / NY. Outside of just a big FU from the Republicans to largely Democratic states what is the end game? E.g. - what are the Republicans actually negotiating for, assum…
I can't overstate how sad it would be if the goal of this change was plainly to stick to to Democrat states. It there is truly do much disdain that didn't boat well for the future as a united country.
> the goal of this change was plainly to stick to to Democrat states
That's not the goal but a predictable side effect of a single party emerging with dominance from close to a decade of structural gridlock. Republicans want to give their base, both donor and electoral, a tax cut. The national debt scares many of their constituents. As a result, they have to at least look like they're trying to avoid blowing the deficit. So they send the bill to outside their base.
This wasn't "let's screw our political opponents." It was "let's help our base and stick the bill to our opponents." Subtle, but different.
Re: Don’t Tax Options and RSUs Upon Vesting
#18The importance of this change can’t be understated; this effectively kills compensation at startups in the form of equity, and would make startups completely unable to compete with incumbents.
Anyone that has options at a company that grows quickly would be paying tens or hundreds of thousands in taxes to keep their equity, which is still effectively a very risky bet that a company will end up huge.
No one would want options anymore, which would make it impossible for startups to compete with large, cash-rich incumbents. That should be the last thing you want if your goal is for an economy to grow.
Re: Don’t Tax Options and RSUs Upon Vesting
#19> That should be a clear enough example to the lawmakers that vesting should not be a taxable event. Vesting has the unique property that before it occurs the shares are not yours and after it occurs, they clearly are (and can't be clawed back). If you don't tax vesting, are you going to instead wait until the shares are sold to tax them? That would be very easy to abuse. > If this provision becomes law, startup and…
> The "losers" in this situation are established companies that arguably are already in a good position to pay out bonuses in cash
If you can pay cash you can compensate your employees for the tax change. The losers are cash-poor companies. They will need to sell more shares, earlier, to pay for the change. That shifts leverage in early-stage negotiations from founders and early employees to investors. It also advantages, in the job market, firms with more cash over those with less cash.
Re: Don’t Tax Options and RSUs Upon Vesting
#20Earlier quoted context omitted.
I can't overstate how sad it would be if the goal of this change was plainly to stick to to Democrat states. It there is truly do much disdain that didn't boat well for the future as a united country.
> the goal of this change was plainly to stick to to Democrat states That's not the goal but a predictable side effect of a single party emerging with dominance from close to a decade of structural gridlock. Republicans want to give their base, both donor and electoral, a tax cut. The national debt scares many of their constituents. As a result, they have to at least look like they're trying to avoid blowing the defi…
It also bears mentioning that some of the proposals in the current plan are surprisingly well-considered. Also, it's not like all of it even hews to traditional republican orthodoxy. A few things I've read:
- Removing state exemptions. This concentrates more control at the federal level and is anti-states' rights which is arguably anti-Republican.
- Mortgage interest deduction removal/lowering the cap. Economists left and right agree this deduction is a huge sop to the rich, who own homes (the poor rent).
- Reducing corporate tax rates. The Economist makes the point constantly that the US's corporate taxes are some of the highest in the OECD and that shareholders, rather than corporations, should be taxed. These high rates also encourage crazy behavior like inversion transactions and tax games with repatriation, etc.