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Don’t Tax Options and RSUs Upon Vesting

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Re: Don’t Tax Options and RSUs Upon Vesting

#261

Post by nkassis »

dahdum wrote: post #244
rsynnott wrote: post #176

Earlier quoted context omitted.

When people talk about this package benefiting the wealthy, they mean very wealthy people. The upper-middle-class would probably take more damage from it than most.

It benefits the lower income groups significantly while giving a kickstart to job growth, at nearly the sole expense of the upper middle class. I don't like the plan because I pay more under it, but the value of the giveaways to the very rich seem rather small compared to low income benefits. Lowering of the corporate income tax rate and axing the mortgage interest deduction has broad support from economists across t…

"while giving a kickstart to job growth" that's less than supported by evidence right now also at current level of unemployment it doesn't seem like taxes have been the limiting factor.

Re: Don’t Tax Options and RSUs Upon Vesting

#262

Post by atomicUpdate »

jsonne wrote: post #239
tschellenbach wrote: post #187

Earlier quoted context omitted.

I know many early stage employees that achieved significant financial upside by working at early stage startups. Working at an early stage startup is probably the only low-risk way of achieving that. Creating your own startup is of course always an option but requires significant upfront capital, a huge opportunity cost in terms of how much you work and a significant cut to your salary. (if anything).

>I know many early stage employees that achieved significant financial upside by working at early stage startups .Working at an early stage startup is probably the only low-risk way of achieving that. I mean knowing "many" is different than that being the majority of the cases, and I would strongly dispute that working at a startup is a "low risk" way of achieving some huge financial upside. I in fact remember seeing…

Agreed. Isn't the general advice to treat the options as worthless and always negotiate for more cash whenever possible? Then, in the rare case they are worth something it's a nice bonus, but not something that should ever be relied upon.

Re: Don’t Tax Options and RSUs Upon Vesting

#263

Post by sulam »

sulam wrote: post #260
jalonso510 wrote: post #258

Earlier quoted context omitted.

"It is not the strike price or the exercise price. It is more-or-less the fair market value of the options when they vest, but if you need to compute your taxes, consult an accountant" This is not correct. The $100k threshold is calculated based on the fair market value of the option at the time of grant , which by definition is the exercise price. So you calculate how many shares you will vest in each year, multipli…

I misspoke in using the term exercise value. However (and you’re a lawyer so I’m going to believe you here) everything I’ve read or can make sense of says it is the value at time of grant that the cap applies to, not some fluctuating fair market value at time of vest. Is that correct?

Oops we are agreeing. Threading on the phone is rough. Anyway I updated the post to clarify cap calculations.

Re: Don’t Tax Options and RSUs Upon Vesting

#264

Post by hamburglar »

neom wrote: post #26

This is awful. Now, if your founder/lawyer was kind, you CONVERT the ISO stock to NSO upon leaving the business and increase the excursive window, so they are not NSOs till the employee leaves the business. (NSO tax per vest, ISO tax on exercise) The way it works in my business is: you have regular ISOs, you vest, you leave, we convert to NSO and give you 8 years to buy them. You're not vesting anymore, so you sidest…

I can suggest another employee-friendly way, which my previous company did for me as a one-time thing, but I would like other companies to learn from and make more common: They allowed me to exercise my options and then, so I could cover the taxes, arranged a sale between me and one of their other investors for a small portion of my shares. It worked out beautifully.

Re: Don’t Tax Options and RSUs Upon Vesting

#265

Post by sulam »

hedora wrote: post #248
sulam wrote: post #188

I'm going to say something that may be unpopular. Hopefully my karma can handle it. The latest analysis I saw of this from Fenwick says that this is only applying to non-qualified stock options. Employees get NSOs when you vest too much to get ISOs in a calendar year, based on the vesting schedule and value at the time of grant, not fair market value at time of vesting of the option. That limit is $100K, for people w…

It is not the strike price or the exercise price. It is more-or-less the fair market value of the options when they vest, but if you need to compute your taxes, consult an accountant. (Yes, this rule is terrible for planning, because you don’t know what fraction of your shares are ISOs until they vest). Today, ISO’s are commonly given to engineers at pre-IPO startups. Nothing says they have to go to execs. Those engi…

> Please do not comment on technical nuances of the tax code you do not understand.

cough. Sound advice, sound advice.

Re: Don’t Tax Options and RSUs Upon Vesting

#266

Post by oceanplexian »

logfromblammo wrote: post #242
s73ver_ wrote: post #195

Earlier quoted context omitted.

"Then it sounds like everything else around what you deliver is worth at least $140-350/hr. If it's really so easy I'm sure you could offer your services for $100/hr, take a nice big raise and save your clients hundreds of thousands a year." Not everyone wants to, or is able to strike it out on their own.

Exactly. If I ran a lemonade stand, it could be the best lemonade within 100 miles, but it would also be bankrupt within an hour. I would need a non-technical co-founder that I could trust to not stab me in the back, and an investor willing to give us enough runway to take off without putting any land mines in it. So far, those conditions have never been met. Business around here is very often more about who you know…

I don't understand most of this post, but claiming you can't strike it on your own because of bureaucracy is baloney. I've done it, have friends who have done it, and it's not that hard. Put together an LLC for a few hundred bucks, reach out via your network for clients (Or conversely, start building a network), read up on sales and business administration, and just do it.

You don't need to "front capital", or work special hours, or have a special clearance, jesus. Just don't live paycheck to paycheck and stash away a few months expenses while you do your thing. Thousands of professionals do this on a regular basis. IMHO employment is much more risky and cutthroat. You don't get to set your salary, end up with disadvantaged tax treatment, and half of your coworkers are focused on crawling up an artificial ladder instead of actually completing work on time.

Re: Don’t Tax Options and RSUs Upon Vesting

#267

Post by [deleted] »

GeneralTspoon wrote: post #134
conanbatt wrote: post #64

Earlier quoted context omitted.

The main problem i see with the equity system is that its absolutely intransparent in terms of cap tables and preferred shares. To the very least, if companies were forced to give out cap tables, or at least, a calculator that gives you your payout based on the company sell out cases, you would be able to measure it. Right now, the calculation is complicated and obsfucated for employees. Lets say you have 1% of stock…

It seems completely absurd to me that preferred shares exist, and one of the reasons I always hesitate whenever I'm offered equity. For anyone curious, here's a good explaination: https://www.capshare.com/blog/how-preferred-stock-affects-th... They basically shift a lot of downside risk from the preferred share owners (usually a VC firm I guess) to the founders and employees in the startup, which in theory makes them…

[deleted]

Re: Don’t Tax Options and RSUs Upon Vesting

#268

Post by sk5t »

loeg wrote: post #255
sulam wrote: post #188

I'm going to say something that may be unpopular. Hopefully my karma can handle it. The latest analysis I saw of this from Fenwick says that this is only applying to non-qualified stock options. Employees get NSOs when you vest too much to get ISOs in a calendar year, based on the vesting schedule and value at the time of grant, not fair market value at time of vesting of the option. That limit is $100K, for people w…

Also — I don't see any problem with forcing companies to compensate employees in cash instead of employer equity. Especially for publicly traded companies, employees can go ahead, turn around and plow that cash into company stock if they want to. (RSUs are just cash in the form of stock anyway.)

The issue is that the companies that most depend on options/SARs/etc. to get off the ground do not have the cashflow. Otherwise it would not even be in their interests to grant equity.

Re: Don’t Tax Options and RSUs Upon Vesting

#269

Post by subprotocol »

abvdasker wrote: post #131
kolbe wrote: post #95

Serious question here. My impression is that Silicon Valley leans heavily liberal, and as such most people there believe in a progressive tax structure and generally lean towards wanting the government to receive more revenue than conservatives. If my impression is wrong, then please correct me. With this in-mind, why is there such outrage about taxing option and RSU income? It's still income. And the current situati…

RSUs issued by a private company are not income because they are completely illiquid. Taxing RSUs at vest makes no sense because their value could change after they vest but before they are converted to liquid equity. In practice what this means is that maybe you get granted $1 million in RSUs by the private company you work for and pay hundreds of thousands of dollars in taxes. The private company goes bankrupt and…

THIS. I believe if it goes bankrupt you at least get the taxes back. But not if the company keeps going as a zombie.

You end up getting shorted by the company AND Uncle Sam here. These RSUs are called "worse than worthless".

Re: Don’t Tax Options and RSUs Upon Vesting

#270

Post by rothbardrand »

Startup Options are already broken-- no liquidity, terrible employee hostile terms (eg: 1 year cliff, losing 90 days after leaving unless you come up with $xx,xxx to exercise options for a stock that won'e be liquid for 5 or more years, etc.) and on top of that the distribution is usually highly weighted towards MBAs to the detriment of the engineers who actually build the product.

So a new model has emerged: cryptocurrency tokens. While ICOs are often scammy, for startups whose business model fits in the form of a currency, this is a better way to reward employees. Liquidity and actual ownership rights... and "vesting" is easy-- just issue them a fixed number per month.

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