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Stripe faces $3.5B tax bill as employees' shares expire

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Re: Stripe faces $3.5B tax bill as employees' shares expire

#231

Post by madaxe_again »

mcherm wrote: post #208
sopooneo wrote: post #197

Earlier quoted context omitted.

One thing I've never understood about this: why on earth aren't there financial products specifically for people in this situation? Especially around Silicon Valley? Bankish Corp floats you the tax bill at some mutually beneficial interest rate, and in return gets a signed repayment guarantee for when you can actually cash out?

Well, it might be a good idea, but there is a lot of risk. There is, for example, a risk that the employees get utterly screwed and are never permitted to cash out.

That isn’t a risk. That’s a near certainty.

Re: Stripe faces $3.5B tax bill as employees' shares expire

#232

Post by admissionsguy »

bboygravity wrote: post #228
sillysaurusx wrote: post #177

Earlier quoted context omitted.

I think I misread your comment, so I deleted my earlier one. Sorry. You’re right: if you’re going to work hard, you may as well choose the path with the highest rewards. If Stripe can’t make it worthwhile, is there a good reason to trade away what you’d get at FAANG? So the hard workers have a lucrative path (FAANG), and the ones who want to spend more time away from work have a more lucrative path (BigCo). That does…

As a European I feel like both those concepts (big money jobs or big money startups) are a USA only concept. Anywhere else in the world that has those kinds of options? China maybe?

But we get frEe hEaLtHcaRe!

And when you factor in the municipal bus network, a $40k salary at Klarna in Stockholm is basically the same as a $350k salary at Stripe in the US.

Not to mention in the USA, god knows what cookies might be put into your browser by any random cooking blog, without warning.

Re: Stripe faces $3.5B tax bill as employees' shares expire

#233

Post by zamnos »

samclearman wrote: post #132
chii wrote: post #130

Earlier quoted context omitted.

> for a paper gain of millions of dollars which is why this part should never have been taxed. Until there's a sale of those shares, the price is merely an estimate and thus is not and should not be considered the FMV.

Not sure what you mean by "should" here, but the IRS definitely considers it to be a gain that you have to pay taxes on, regardless of whether you can sell the shares.

Yes that's exactly the problem. Why does it seem okay for the IRS to demand a million dollars from someone who has no way to pay that? Like, doesn't that seem like something is wrong/broken somewhere? There's a cottage industry of loan sharks who will lend people money so they can pay, but how about instead the IRS not take money from people who don't yet, and may not ever, actually have the money to pay, until they, y'know, have the ability to pay off that tax bill.

Re: Stripe faces $3.5B tax bill as employees' shares expire

#234

Post by scarface74 »

dasil003 wrote: post #229
scarface74 wrote: post #223

Earlier quoted context omitted.

But statistically, the chance of any startup succeeding is about 10% and buy “success it just means that the investors didn’t lose money - not that you made a killing

Joining Stripe at 600 was not that kind of bet. It was significantly derisked by that point was really a question of how far that early momentum could carry them.

So isn’t it still risky since you can’t get access to your equity?

My RSUs are deposited into my account every six months and I can sell and diversify them.

Re: Stripe faces $3.5B tax bill as employees' shares expire

#235

Post by bagels »

sopooneo wrote: post #197
throw3823423 wrote: post #48

Earlier quoted context omitted.

It's pretty accurate: Employees don't have a few million in change, each, to turn the RSUs into plain stock. I don't think the issue is making employees wealthy or not: It's 10 year old RSUs, so most of them are owned by former employees. But consider the size: If the tax bill is 3.5B, the full size of the grants we are talking about here is over 10B! last valuations in the press are at something like 60b. So 1 in 6…

One thing I've never understood about this: why on earth aren't there financial products specifically for people in this situation? Especially around Silicon Valley? Bankish Corp floats you the tax bill at some mutually beneficial interest rate, and in return gets a signed repayment guarantee for when you can actually cash out?

There are, I think. Forge global and others have services like this.

Re: Stripe faces $3.5B tax bill as employees' shares expire

#236

Post by jjav »

sillysaurusx wrote: post #143
noahmbarr wrote: post #22

(Uninvolved growth-stage CFO perspective) The IRS mandates that stock option grants expire after 10 years. My best guess is these early employees are quickly approaching those grants' 10 year mark, and face an exercise or "lose it" situation. If you exercise, you have to pay the gain. For early employees, this could/would be a massive bill -- probably well into the 7-8 digit range for some early hires. Stripe seems t…

Could anyone translate this into “The early employees will get wealthy from this” or “they’ll get slightly more than they would’ve gotten from getting a job at BigCo over 4 years”? My problem with equity grants is that everyone treats them like they’re so valuable, when in fact the EV is usually close to zero. That wouldn’t be so bad if the upside was really good, but dealing with nonsense like this makes them even l…

> If they don’t come out of it with lots of after-tax cash, then that calls into question why to even work at one.

When joining any early startup, you really want to be able to do an early exercise of your options immediately when you join. If this is not possible for whatever reason, I consider it too risky to join.

When joining a startup one already knows it can fail the traditional way (bankrupcy), so that's the risk we take. But getting stuck in the position of having hit it big on paper but you can never leave the company because there is no liquidity, or having them expire.. just too painful.

Re: Stripe faces $3.5B tax bill as employees' shares expire

#237

Post by lrem »

bboygravity wrote: post #228
sillysaurusx wrote: post #177

Earlier quoted context omitted.

I think I misread your comment, so I deleted my earlier one. Sorry. You’re right: if you’re going to work hard, you may as well choose the path with the highest rewards. If Stripe can’t make it worthwhile, is there a good reason to trade away what you’d get at FAANG? So the hard workers have a lucrative path (FAANG), and the ones who want to spend more time away from work have a more lucrative path (BigCo). That does…

As a European I feel like both those concepts (big money jobs or big money startups) are a USA only concept. Anywhere else in the world that has those kinds of options? China maybe?

Switzerland, to not search far. There might be worthwhile startups in London and Berlin, but they don't tend to go as large as the ones in the US.

Re: Stripe faces $3.5B tax bill as employees' shares expire

#238

Post by friendzis »

KptMarchewa wrote: post #72
throw3823423 wrote: post #48

Earlier quoted context omitted.

It's pretty accurate: Employees don't have a few million in change, each, to turn the RSUs into plain stock. I don't think the issue is making employees wealthy or not: It's 10 year old RSUs, so most of them are owned by former employees. But consider the size: If the tax bill is 3.5B, the full size of the grants we are talking about here is over 10B! last valuations in the press are at something like 60b. So 1 in 6…

I don't understand why there's tax on unrealized gains there.

While I personally think there ARE gains, even if you insist on there being no gains then there is simple tax adjustment.

An employee is compensated with *contracts* to buy stock. Those contracts *themselves* are valued at the strike price, i.e. an employee is accounted to gain ${strike-price} worth of value.

At some point said employee decides to exercise said option contracts, i.e. convert contracts to stock. At the moment of conversion stocks are worth x and ${strike-price} previously paid to employee magically turns into x.

You can either think that employee gained `x - ${strike-price}`, or that employee was previously taxed on ${strike-price} and tax base was adjusted to x. In any case there is income equal to `x - ${strike-price}`.

Re: Stripe faces $3.5B tax bill as employees' shares expire

#239

Post by ctchocula »

kelnos wrote: post #139
tyre wrote: post #136

Earlier quoted context omitted.

It’s fair because otherwise you could compensate people for zero tax. For example, you have a CEO that can either be paid: 1) $1m in cash 2) $1m in stock 3) an option grant to buy 1m shares at $0.000001. Each share has a FMV of $1. Without AMT, you could always take (3) and they would get $1m of stock for $1. Tax free.

So what? $1M in stock doesn't pay the rent. They'd still get taxed when they sell the shares.

Per Buy, Borrow, Die, they could take a margin loan using that $1M and use borrowed money (say $100K) to pay the rent. With enough accumulated shares, they wouldn't need to sell the shares in their lifetime. After they've passed away, they would pay off the loan and the stock gets a free step up to the appreciated cost basis.

Re: Stripe faces $3.5B tax bill as employees' shares expire

#240

Post by wreath »

admissionsguy wrote: post #232
bboygravity wrote: post #228

Earlier quoted context omitted.

As a European I feel like both those concepts (big money jobs or big money startups) are a USA only concept. Anywhere else in the world that has those kinds of options? China maybe?

But we get frEe hEaLtHcaRe! And when you factor in the municipal bus network, a $40k salary at Klarna in Stockholm is basically the same as a $350k salary at Stripe in the US. Not to mention in the USA, god knows what cookies might be put into your browser by any random cooking blog, without warning.

You dont have free healthcare. You pay for it like tech employees in the US do and you probably get worse service. At least there is a chance in the US to make generational wealth for a middle class, but no way in hell in Europe.
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