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Former Uber employees have gone into debt to exercise options they can’t sell

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Re: Former Uber employees have gone into debt to exercise options they can’t sell

#161

Post by kwillets »

chii wrote: post #148
niuzeta wrote: post #134

Earlier quoted context omitted.

Right. So in the eyes of IRS you just didn't buy something, you in fact gained in net worth, except all those new assets you've purchased is illiquid.

except the valuation is a private estimate. why can't the tax be levied when the same stock is liquidated into cash? then you'd get a real price, rather than an estimate.

It adjusts to the price on that day far in the future when employees get out of lockup, but if it spans tax years you're still screwed. Basically, when you have gains, you only ensure realistic taxes when you exercise and sell within the same tax year; otherwise you take a huge risk.

Re: Former Uber employees have gone into debt to exercise options they can’t sell

#162

Post by Eridrus »

astura wrote: post #159
caseysoftware wrote: post #157

Earlier quoted context omitted.

> I think it's healthy to just let vesting mean you get to take it with you, period, no catch. This sounds great in concept but in practice acquiring the shares is the taxable event. So if a company just gives you shares, that's the taxable event. And since you get taxed on the delta between your strike price and the "fair market value" (even though there isn't one), it would happen on the company's schedule, not you…

>So if a company just gives you shares, that's the taxable event. Unless they put them in your 401k, which is exactly what many (most?) companies do.

I have literally never heard of this...

Re: Former Uber employees have gone into debt to exercise options they can’t sell

#163

Post by astura »

Eridrus wrote: post #162
astura wrote: post #159

Earlier quoted context omitted.

>So if a company just gives you shares, that's the taxable event. Unless they put them in your 401k, which is exactly what many (most?) companies do.

I have literally never heard of this...

Maybe not in a startup?

I have company stock given to me in my 401k.

https://www.fidelity.com/viewpoints/personal-finance/company...

>More than 15 million people own about $400 billion of company stock in Fidelity-administered workplace retirement plans alone

Re: Former Uber employees have gone into debt to exercise options they can’t sell

#164

Post by bsimpson »

khuey wrote: post #56
rb808 wrote: post #50

Earlier quoted context omitted.

I dont understand this. if they're worthless & you can't sell, why do you pay tax as if the stock is worth $90? Edit: Can someone point me to IRS docs? or blog explaining?

Because they're not worthless, they're just not liquid.

But by the time they become liquid (if they ever do), they could be approximately worthless, or worth much less than they were when you paid tax.

Re: Former Uber employees have gone into debt to exercise options they can’t sell

#165

Post by bsimpson »

rsynnott wrote: post #37
bsimpson wrote: post #26

Earlier quoted context omitted.

Another detail that's not well-known unless you know someone who's gone through it: buying your shares comes with a huge tax bill. As I understand it, you have to pay tax on the difference between the option price and the value at the time you buy them. So if you have a bunch of options to buy at $10 per share, and the company grows to $90 per share by the time you quit/have to buy your shares, you're taxed on $80 a…

Which is why, in general, you shouldn’t exercise them unless the company is sold/goes public. Could be worse; in Ireland I’d pay a little over 50% on my options if I exercised them. Which is why I don’t. I certainly wouldn’t be interested in taking a job in a private company where options were a significant part of compensation. EDIT: Just noticed from the article, Uber employees had to exercise within 30 days. Wow.…

7 years wasn't normal until Pinterest did everybody a solid and set that precedent:

https://medium.com/@michaeldeangelo/unlocking-the-golden-han...

Re: Former Uber employees have gone into debt to exercise options they can’t sell

#166

Post by gfodor »

kemitche wrote: post #143
LeifCarrotson wrote: post #141

Earlier quoted context omitted.

I was following you for a while...but can you explain how this is different than taking out a home equity loan, going $200-300k in debt, and buying lotto tickets for a chance to become a millionare? Aside from the fact that you wouldn't know whether you would or would not have won that lotto.

The chance of winning the lotto is much much smaller than the chance of Uber surviving to an IPO with value at/above the fair market value that triggered $300k in AMT.

Yep I was referring specifically to the idea of Uber options converting to stock worth some reasonable price. The idea of Uber completely imploding to $0 seems rather far fetched, but it depends on strike price, etc.

Re: Former Uber employees have gone into debt to exercise options they can’t sell

#168

Post by caseysoftware »

astura wrote: post #163
Eridrus wrote: post #162

Earlier quoted context omitted.

I have literally never heard of this...

Maybe not in a startup? I have company stock given to me in my 401k. https://www.fidelity.com/viewpoints/personal-finance/company... >More than 15 million people own about $400 billion of company stock in Fidelity-administered workplace retirement plans alone

I've never heard of it either but have some reading ahead of me.

Though I've been at both companies pre-IPO so that is probably the first distinction. Post-IPO, the rules are quite a bit different so maybe it's an option now..

Re: Former Uber employees have gone into debt to exercise options they can’t sell

#170

Post by huac »

jessriedel wrote: post #160

Can employees reasonably hedge the risk of Uber taking a nose dive by buying put options?

If it were a public company sure but it's difficult to find a counterparty (at some point of the hedging process, somebody is gonna need to settle the trade with a share of Uber stock, and Uber stock is notoriously illiquid, and we're back to step 1).
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