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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

#311

Post by kelnos »

solipsism wrote: post #32
tome wrote: post #5

Earlier quoted context omitted.

> I do think it's a reasonable complaint to get taxed on something you can't liquidate. One way to sidestep this would be to force the taxing authority to take some of the options as payment, rather than cash. You've been granted 100 options at a value of $x each and the tax rate is 20%? Just give them 20 options. That way it doesn't matter what x is or whether the market is liquid!

But who would manage this federal portfolio?

It's not like there's no precedent for this sort of thing. The Alaska Permanent Fund[0] is a fine example of a portfolio managed by a state-owned corporation that pays out to residents.

[0] https://en.wikipedia.org/wiki/Alaska_Permanent_Fund

Re: Don’t Tax Options and RSUs Upon Vesting

#312

Post by KerrickStaley »

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…

Can you link to the Fenwick analysis that this is based on?

Re: Don’t Tax Options and RSUs Upon Vesting

#313

Post by 8ytecoder »

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.)

I don't like the government literally making the choice for everyone. It's an incentive structure. It's like taxing a promise note to me that I'll be paid $x dollars in $y years. Options is an incentive which says I can't pay you as well as I'd like but instead I'll share the upside with you. Investors who put in cash are not taxed for the shares they receive. Options should be viewed similarly. It's like sweat-equity in a sense.

Re: Don’t Tax Options and RSUs Upon Vesting

#314

Post by panic »

vostok wrote: post #143
panic wrote: post #94

Earlier quoted context omitted.

This narrative isn't consistent with what the actual tax bill does, which is a massive redistribution of wealth to the very richest Americans. For example, what part of repealing the estate tax for inheritances above $5.5 million will help this urban middle class?

> For example, what part of repealing the estate tax for inheritances above $5.5 million will help this urban middle class? The narrative is that the tax bill is meant to help the rich and the rural red state poor at the expense of the urban blue state middle class.

Oops, I meant to say rural middle class!

Re: Don’t Tax Options and RSUs Upon Vesting

#315

Post by conanbatt »

kelnos wrote: post #307
conanbatt wrote: post #295

Earlier quoted context omitted.

If it were of public knowledge that when a company IPO's, employees in total collect less than 10% of the gains, the public outrage would soon ban the practices that we see everyday. Today we have a lottery where we dont know the winners and so they are protected. I dont have animosity against investors for protecting their gains, that is fine (for them, ofc, but they are reacting to their incentives). The main reaso…

> If it were of public knowledge that when a company IPO's, employees in total collect less than 10% of the gains, the public outrage would soon ban the practices that we see everyday. What do you mean? Of course this is public knowledge. Anyone accepting an equity grant as an employee who doesn't know this isn't doing their due diligence. Asking about the cap table of a small startup while interviewing is an entirel…

> What do you mean? Of course this is public knowledge. Anyone accepting an equity grant as an employee who doesn't know this isn't doing their due diligence.

Really. Can you tell me what were the employee gains of facebook, google and twitter on stock divided by the market compensation at the time that the engineers got? Where the engineers back then at every single founding round making a proper decision based on the information they had?

Please.

> Asking about the cap table of a small startup while interviewing is an entirely reasonable thing to do, and I've immediately discounted an interview at a company where they've been cagey about giving me details. I mean, I'm fine with them not breaking it down into what percentage each investor owns, but telling a prospective employee how much of the company in total is owned by VCs vs. founders vs. employees/option pool is pretty uncontroversial.

Its not always available on the decision for the employee. The cost of acquiring that information is orders of magnitude different from the employee than the founders/investors. Its still asymmetry of information, even if it is provided, which it isn't always. In any case, if thats what you believe, then you would have no concerns of making it public, since it already is.

> This doesn't really make sense. You've just described a publicly-traded company, and obviously an early-stage startup can't afford to be one of those.

Why cant it afford to be "one of those"?

Re: Don’t Tax Options and RSUs Upon Vesting

#316

Post by austenallred »

kolbe wrote: post #100
austenallred wrote: post #46

Earlier quoted context omitted.

The value associated with them is illiquid. I can’t necessarily sell my stock options for what they’re “worth,” so taxing them at that level makes them pretty much worthless. It’s already taxed when I sell them - when I get dollars that I can spend. Taxing before then is (I hope) an oversight.

Would you be cool if you got taxed on the income tax scale upon selling them?

Sure

Re: Don’t Tax Options and RSUs Upon Vesting

#317

Post by austenallred »

optimuspaul wrote: post #175
austenallred wrote: post #59

Earlier quoted context omitted.

It all depends. It’s certainly hard to compete with a $500k/yr sure thing, but personally I’d rather have a $150k/yr salary with a chance to retire if the company does well than a sure $200k/yr. It just all depends. Risk-adjusted, the best way to get returns is probably to take an equity-heavy stake at a post-series-B startup with obvious growth and product market fit.

I used to feel that way too until I tried it multiple times. All of the startups I've been involved with have been buried or purchased with deals that made my options worthless or effectively worthless (i.e. needing to come up with enough capital to execute the options for such a meager gains that it was hardly worth the effort).

On the other hand I know hundreds of people that this kind of equity made millionaires.

Re: Don’t Tax Options and RSUs Upon Vesting

#318

Post by austenallred »

exelius wrote: post #181
rsynnott wrote: post #174

Earlier quoted context omitted.

> So we have to start paying people in actual shares if we want to give equity. People wouldn't want that either; they'd still have to pay tax on shares that were, for practical purposes, worthless at time of issue (and time tax due) and would statistically probably always be worthless. Under this system, you'd really have to abandon compensation with stock of any sort for non-publicly traded entities.

I think the key here is that the valuations would change and likely be far more realistic. We certainly haven't seen the whole story on cryptocurrencies to know what regulation needs to apply, so I'll withhold any speculation there. But I have a feeling that with the amount of data a blockchain-based security gives you, the need to restrict non-publicly traded entities somewhat goes away (since you can always audit a…

Why would valuations change and be more realistic if you tax illiquid stock people can’t afford to pay taxes on the gains of?

Valuations would be artificially low if that were the case.

Re: Don’t Tax Options and RSUs Upon Vesting

#319

Post by [deleted] »

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…

[deleted]

Re: Don’t Tax Options and RSUs Upon Vesting

#320

Post by kelnos »

JonFish85 wrote: post #93
bnjmn wrote: post #76

Here's the statement I plan to read to my representatives: I live in Greenpoint, Brooklyn. I work for a small startup of less than 30 employees. Three years ago I left a large, publicly traded tech company to take this job, because of the potential I saw in the work the startup was doing. I took a significant pay cut when I joined the startup, a decision that was justifiable only because of the distant future value o…

It may be an interesting exercise to think of how this can be turned "against" you. If you wanted to play armchair politics, you could spin this: - Highly paid engineer walked away from a 6 figure salary - Takes a job at a small company where he gets equity that could potentially be worth millions. - Complains that he may have to pay taxes on a significant portion of his compensation. Put those together, and you have…

I think the "easy" rebuttal to your third point/counterargument is that's not what's actually happening: you're being forced to pay taxes on vapor. No one is objecting to paying tax when stock is sold; that's normal and reasonable. It's just crazy to expect people to pay taxes on something that cannot be sold.
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