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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

#121

Post by s73ver_ »

austenallred wrote: post #21
eldavido wrote: post #16

I think the way we do options in startups needs a more fundamental rethink. I wouldn't be too sad if the current system falls on its face. I like Buffett's proposal from a few years ago. They don't grant stock, they simply pay cash (bonuses) and if employees want to buy in, it's their money, after all. What's really needed is a way some group of insiders in a company can transfer shares among themselves or outsiders.…

That’s the point of options though - most of the time that “cash” doesn’t exist to be paid out in bonuses. Options are a bet that it will exist in the future. Why do startups pay lower salaries than Facebook? Because Facebook throws around $200-300k salaries and doesn’t care. Startups can’t do that, so it promises a piece of the pie if the company becomes big and successful instead.

Yeah, but all the risk of that bet is put on the employee. The employer faces none of it.

Re: Don’t Tax Options and RSUs Upon Vesting

#122

Post by dcosson »

Is there any chance companies could fairly easily adapt to this? For instance, grant 30% more equity per year than they otherwise would and buy back that 30% as it vests to cover taxes.

Edit: Now that I think about it those numbers don't work because it's an extra cost for the company to buy back your stock. So you end up with fewer shares with this scheme, but the company has also effectively paid off your "golden handcuffs". So in some cases it should even out in the end (you don't pay those taxes in a liquidity event) and in other cases it's actually better for the employee (you can afford to keep more of your equity if you leave before a liquidity event).

Re: Don’t Tax Options and RSUs Upon Vesting

#123

Post by s73ver_ »

3pt14159 wrote: post #62
oneshot908 wrote: post #45

Earlier quoted context omitted.

At this point, unless you're C-suite, most startups are a really bad bet compared to the BigCos paying out anywhere from $250K-$1M annually depending on your skill set and experience. What's happening now IMO is that the hot talent has figured this out and they have accepted positions at Tesla, Salesforce, Google, Facebook, Apple, or Amazon. That said, I know someone who walked away from a $10M package over 4 years t…

The other problem is cryptocurrencies have created a ton of new companies that are paying big for talent. I actually think this is a good thing. Too many people were working on dumb startups back then. I want more engineers at Tesla.

Are they paying in cash, or in their cryptocurrency?

Re: Don’t Tax Options and RSUs Upon Vesting

#124

Post by opportune »

s73ver_ wrote: post #120
logfromblammo wrote: post #43

Earlier quoted context omitted.

What if your goal is for technical talent to prefer companies that make parts for the F-35 that actually function as intended, instead of companies that could be described as "Uber for cat-sitters" or "the Snapchat of Etsy-linked Tumblr posts" or "Pets.com with more tulip bulbs" or "like Facebook, except fronting for GRU instead of NSA"? In that case, it would meet that goal very well. What a pity it is that the tech…

At the same time, wouldn't that talent be equally wasted at "Uber for cat-sitters"?

I agree, it's a bad comparison.

What's more happening is that talent is being attracted to mid-stage startups, unicorns, and the big companies like Google and Amazon. Early-stage startups like "Tinder for people with green hair" don't employ enough people across the market for them to significantly impact it.

I don't think this is about government fighting against stock-paying companies for tech workers by fucking up RSUs. In reality it's probably just government incompetence. No need for strawmanning or conspiracy

Re: Don’t Tax Options and RSUs Upon Vesting

#125

Post by tome »

koolba wrote: post #9

> That should be a clear enough example to the lawmakers that vesting should not be a taxable event. Vesting has the unique property that before it occurs the shares are not yours and after it occurs, they clearly are (and can't be clawed back). If you don't tax vesting, are you going to instead wait until the shares are sold to tax them? That would be very easy to abuse. > If this provision becomes law, startup and…

> If you don't tax vesting, are you going to instead wait until the shares are sold to tax them? That would be very easy to abuse.

Why would it be easy to abuse? Surely you can just set the tax basis of those shares to 0?

Re: Don’t Tax Options and RSUs Upon Vesting

#126

Post by bpicolo »

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…

The problem is that it's explicitly not real income for those working at companies which aren't publicly traded. For publicly traded companies, you typically sell-to-cover at vesting time, so you're already doing this sort of thing usually.

For private companies, that's not an option, so you would have to pay tax at vesting time for options you could quite possibly never have an opportunity to sell.

Re: Don’t Tax Options and RSUs Upon Vesting

#127

Post by conanbatt »

walshemj wrote: post #71
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…

Or like in the uk for approved (ie tax friendly) enforce the issuing of the same shares to employees as the others.

I'm not sure that is better. Extra provisions on capital might be adding more capital to the mix, which increase wages all around. It might be shooting yourself in the foot.

But hiding the information is a way for investors to have more leverage over employees. That is an undoubtedly unfair surplus to them.

Its not the only thing I'd change. I would do away with the restriccions of investing in startups as well. That would allow employees to buy stock whenever they want to (and the company is willing to sell them for) without this obscure negotiation. The minimum limits on investing in startups is a way to give higher returns to investors, while harming founders and employees.

Re: Don’t Tax Options and RSUs Upon Vesting

#128

Post by heimidal »

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…

It's not income if you never exercise the option.

Imagine starting as a senior-level manager at a company that's a few years into its life. They provide you with a salary of $150k/year and 100,000 options at $1 with a standard four-year vesting schedule. In the first year, the company's fair market value increases to $2/share. Your tax liability just increased as though you made an extra $25k, so you'll need to come up with ~$8k to cover.

If the company sees its value increase 2x per year for all four years, you'll be on the hook for taxes on $675k having only made $600k in actual dollars. Good luck scraping together taxes to cover adjusted income of $525k in year 4 if the company doesn't go public.

If the fair market value falls after you vest but before a liquidity event, you never saw a penny of extra liquid assets but still had to pay tens or hundreds of thousands in taxes.

This will bankrupt people.

Re: Don’t Tax Options and RSUs Upon Vesting

#129

Post by [deleted] »

dcosson wrote: post #122

Is there any chance companies could fairly easily adapt to this? For instance, grant 30% more equity per year than they otherwise would and buy back that 30% as it vests to cover taxes. Edit: Now that I think about it those numbers don't work because it's an extra cost for the company to buy back your stock. So you end up with fewer shares with this scheme, but the company has also effectively paid off your "golden h…

[deleted]

Re: Don’t Tax Options and RSUs Upon Vesting

#130

Post by briandear »

tome wrote: post #50
solipsism wrote: post #32

Earlier quoted context omitted.

But who would manage this federal portfolio?

The IRS would just immediately liquidate the options on the open market. Oh, there is no liquid market! So if the IRS can't do it why should individual startup employees be required to do it? If the IRS are going to say that 100 options are worth $100x and charge tax based on that then they should be willing to accept 20 options in lieu of $20x.

So much this! If they seize a boat for non tax payments, they can auction it; it would be interesting if there were a secondary market of buying shares in startups at an IRS auction.

The fair market value of something is whatever you can sell it for, not what someone says it’s worth. Taxing something that can’t be converted to tangible value is just wrong. They are basically taxing potential and not reality. They are taxing the egg based on what the resulting chicken might be worth.

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