House Passes Employee Stock Options Bill Aimed at Startups • Hacker News Board

Re: House Passes Employee Stock Options Bill Aimed at Startups

#111

Post by cloudjacker » Fri, Sep 23, 2016, 4:24 PM UTC

shados wrote: post #65

matt_wulfeck wrote: post #57

> Only startups offering stock options to at least 80 percent of their workforce would be eligible for tax deferrals, and a company’s highest-paid executives would not be able to defer taxes on their stock under the legislation. I understand the desire to avoid a regressive taxation system, but why is it that every tax rule we create comes with 2x the amount of caveats and rules? Our tax system is becoming a mess. At…

the US is in a weird position where the federal government actually has very little power. But it has tax power. So they just use taxes as a way to manipulate things in the way they want. But as far as I understand, the US tax system is also one of the 2-3 most complicated in the world... Being an permanent resident and not being used to this from my home country, Im making a lot of suboptimal financial decisions pur…

Odd because the complications create the opportunities

I pursue certain characterizations of income

Ie. If I know my employer withheld too much social security tax then I'll consult because no money is withheld and not worry about paying taxes on it because it will balance out

Or I'll pursue a compensation structure that can be characterized as capital gains instead of self employment income

And more

Re: House Passes Employee Stock Options Bill Aimed at Startups

#112

Post by throwaway2016a » Fri, Sep 23, 2016, 4:27 PM UTC

matt_wulfeck wrote: post #57

> Only startups offering stock options to at least 80 percent of their workforce would be eligible for tax deferrals, and a company’s highest-paid executives would not be able to defer taxes on their stock under the legislation. I understand the desire to avoid a regressive taxation system, but why is it that every tax rule we create comes with 2x the amount of caveats and rules? Our tax system is becoming a mess. At…

> a company’s highest-paid executives would not be able to defer taxes on their stock under the legislation.

Where is the line drawn on this? I am a companies highest paid executive... I make a whopping $100k. Some of the others have no pay check at all. Exersizing would net a $40k tax bill for me. 40% of my pre-tax take-home pay. But as the highest paid executive am I exempt from deferring?

Edit: to answer my own questions...

> who has been for any of the 10 preceding taxable years one of the 4 highest compensated officers of such corporation determined with respect to each such taxable year on the basis of the shareholder disclosure rules for compensation under the Securities Exchange Act of 1934

Translation... I guess this doesn't benefit me, then.

Re: House Passes Employee Stock Options Bill Aimed at Startups

#113

Post by chubot » Fri, Sep 23, 2016, 4:27 PM UTC

mrfusion wrote: post #22

Does anyone have experience buying stock options from employees. I really want to own shares in a few companies that would never hire me :-(

I would check out sharespost, equityzen, or equidate (and also search for them on Hacker News, as I found others mention experience with sharespost). I don't have direct experience, but I was helping a friend with a number of shares in a late stage startup research the sell side, and those are the companies that came up.

It crossed my mind to buy shares but I haven't done so. For some of them, you have to be an accredited investor, which means a certain net worth/income threshold to be met. (I think the SEC is trying to prevent naive investors from getting fleeced in this "dark" market). SharesPost seems to have a fund that gets you exposure to a lot of late stage startups.

AngelList apparently has a fund for early stage startups... if anyone knows anything about that I would appreciate any feedback.

EDIT with more info: From my research, buying from every company is different. That is why companies like SharesPost exist. And you really should have the permission of the company to do the transaction.

I think it may be possible to do it without their permission, but that's beyond my knowledge. There should be employees willing to go through this effort because they stand to benefit because you are offsetting their tax risk.

Re: House Passes Employee Stock Options Bill Aimed at Startups

#114

Post by jkern » Fri, Sep 23, 2016, 4:31 PM UTC

How does this relate to the push for startups to change from a 90 day to 10 year exercise window? It seems like that's a better option than this bill since it gives employees a larger time window to make an exercise decision, during which the likelyhood of options actual resulting in something liquid is much higher

Re: House Passes Employee Stock Options Bill Aimed at Startups

#115

Post by revo13 » Fri, Sep 23, 2016, 4:37 PM UTC

whamlastxmas wrote: post #104

revo13 wrote: post #55

Earlier quoted context omitted.

So you are content with having a tax system that treats you like a 1%er in the event that you cash in a payday (say $1mil - 35-40%) during a given year, despite the fact that you may have worked your whole life at a middle class level, scraping to save? A consumption tax would allow individuals to actually make choices about how/when they are taxed. Lets be honest, people will still want their "stuff". If they have m…

If I normally make 60k a year and get a one-time payday of $1MM, I'll be paying around 13% more in income tax on that million dollars than I do on my regular income. Even with AMT it isn't a huge deal. This seems pretty reasonable to me. It's not perfect but it's not a reason for completely eliminating income tax. It's a reason for having exemptions, which is exactly what this article is about. >If they have more mon…

$60,000 income with std deduction and personal deduction equates to a tax burden of $8,219 or effectively 13.7%. $1,060,000 income equates to a tax burden of $406,314 or effectively 38.3% (treated as a short term capital gain).

That is money I could have saved and invested BEFORE being taxed an extraordinary rate for it relative to my place in life. I happened into money when I'm typically taxed at >> All the rich people would just buy them overseas.

That is a fair point. That said, if I buy something overseas from Europe right now, I don't pay VAT (coming from US). A large number of vendors compensate for this and keep the prices for US purchasers high and not an exact match to their Euro prices. So I think in practice you would see overseas retailers raising their prices to come close (or match) the US price that includes the consumption tax. That would balance out and lead people to do the easy thing and just buy in the US. Maybe... Maybe not...

Re: House Passes Employee Stock Options Bill Aimed at Startups

#116

Post by calcsam » Fri, Sep 23, 2016, 4:38 PM UTC

harryh wrote: post #86

calcsam wrote: post #82

This is amazing news. Some context: It's quite common to owe taxes today for gains on the value of your stock -- which is an illiquid asset you can't sell. This puts employees in the position of shelling out cash to keep something that rightfully belongs to them, or simply abandoning it (failing to exercise) when they leave the company. This bill would defer taxes on gains up to 7 years, or until the company goes pub…

Your statement about RSUs is wrong. They are specifically designed to avoid an immediate tax hit.

RSUs are immediately taxable upon vesting. Companies often cover this, but it's at the discretion of the company.

Re: House Passes Employee Stock Options Bill Aimed at Startups

#117

Post by cdbattags » Fri, Sep 23, 2016, 4:40 PM UTC

How would this affect the concept of phantom stock options? I worked at a startup who used the main excuse of no taxes paid handing out ghost options instead of normal options.

"Phantom stock can, but usually does not, pay dividends. When the grant is initially made or the phantom shares vest, there is no tax impact. When the payout is made, however, it is taxed as ordinary income to the grantee and is deductible to the employer."

https://en.wikipedia.org/wiki/Phantom_stock

Re: House Passes Employee Stock Options Bill Aimed at Startups

#118

Post by [deleted] » Fri, Sep 23, 2016, 4:42 PM UTC

chubot wrote: post #113

mrfusion wrote: post #22

Does anyone have experience buying stock options from employees. I really want to own shares in a few companies that would never hire me :-(

I would check out sharespost, equityzen, or equidate (and also search for them on Hacker News, as I found others mention experience with sharespost). I don't have direct experience, but I was helping a friend with a number of shares in a late stage startup research the sell side, and those are the companies that came up. It crossed my mind to buy shares but I haven't done so. For some of them, you have to be an accre…

[deleted]

Re: House Passes Employee Stock Options Bill Aimed at Startups

#119

Post by dlubarov » Fri, Sep 23, 2016, 4:42 PM UTC

toomuchtodo wrote: post #103

gtrubetskoy wrote: post #102

I still don't understand why taxes are owed. If an option at the time of grant is worth $0 (which is how it's typically done or is that not the case?), then you don't owe anything to the IRS until you exercise the option, i.e. buy shares at the option price and sell them at presumably higher valuation and make some money, at which point you will need to part with some of it because it's income. But if you never exerc…

If you exercise your ISO options (because of option expiration clauses, typically 90 days after you leave a company), but then don't (or can't due to no market for the shares) immediately sell those shares, the spread between the option grant price and the current 409A valuation is due as AMT tax. You have not realized an event where cash is in your pocket, but you still owe tax on the "gain". You ask what does it ma…

> the spread between the option grant price and the current 409A valuation is due as AMT tax

For ISOs. When you exercise NSOs, the spread is taxed as ordinary income.

Re: House Passes Employee Stock Options Bill Aimed at Startups

#120

Post by harryh » Fri, Sep 23, 2016, 4:42 PM UTC

calcsam wrote: post #116

harryh wrote: post #86

Earlier quoted context omitted.

Your statement about RSUs is wrong. They are specifically designed to avoid an immediate tax hit.

RSUs are immediately taxable upon vesting. Companies often cover this, but it's at the discretion of the company.

They're taxable on delivery. For public companies that's almost always at the same time as vesting, but for private companies that's generally at the time of an exit.