Hacker News Board Hacker News, browsed like a classic message board
Live data from Hacker News

House Passes Employee Stock Options Bill Aimed at Startups

morningconsult.com

Post reply on HN
Print view View original

21–30 of 232 posts

Re: House Passes Employee Stock Options Bill Aimed at Startups

#21

Post by ones_and_zeros »

breerly wrote: post #18
ones_and_zeros wrote: post #14

Earlier quoted context omitted.

The argument could be made that this is actually a gift to businesses and executives. Ultimately this bill makes working at a startup more attractive when they are already a pretty poor choice, so we'll just have more people making poor choices and putting themselves at financial risk to the benefit of their employer.

This makes it so employees can actually participate in the upside of the risk - something that the current tax setup can make impossible for employees of highly valued private companies. --- I'm Bob, I write a check for $50K to exercise my stock options. They might be worth something some day, I'm taking that risk and working my ass off to see that they are. The year I exercise the options, the gov sees that I've mad…

I understand the intent of the legislation perfectly.

How often do you think gains are ever realized by startup employees given stock options?

Re: House Passes Employee Stock Options Bill Aimed at Startups

#24

Post by harryh »

gshulegaard wrote: post #11
chillydawg wrote: post #3

Nice to see tax laws for the rich can get passed, but substantive change to do with criminal justice, healthcare etc go nowhere.

To be perfectly honest, this bill affects mostly middle class near as I can tell. The following is entirely personal understanding of my own stock option agreement and is subject to mistakes and misconceptions...so someone can feel free to correct me. The problem this bill targets is the "exercise tax" interaction. Say you are an employee at a start up. Said start up can't afford your full normal salary so they pay y…

You have the gist right but a couple of corrections:

1) The board doesn't set the price arbitrarily. They engage a 3rd party accounting firm to do a 409A evaluation of the company. The 3rd party essentially sets the price. It's true that determining a market price for private company stock is just as much art as science but it's not completely arbitrary.

2) The company ABSOLUTELY CANNOT offer stock options at a discount to the 409A. There is a good chance people would go to jail these days if they did that.

3) The discount that you are talking about is the discount from preferred stock (which investors generally hold) and common stock (which employees generally hold). Preferred stock is legitimately more valuable because of various privileges attached to it that are not attached to common.

4) If you immediately exercise your stock upon granting you won't face an "exercise tax" interaction because the price at which you exercise will be the same as your strike price. If you can afford it this, is often a good idea. You have to file some paperwork with the IRS called an 83B to do this right.

5) It's when you wait some period of time that you can face an exercise tax. This is because over time the company will do additional 409As and if the company is succeeding those will indicate that common stock has risen in value. It's that difference that you might have to pay taxes on. It's this tax that this bill aims to let you defer.

Re: House Passes Employee Stock Options Bill Aimed at Startups

#25

Post by breerly »

ones_and_zeros wrote: post #21
breerly wrote: post #18

Earlier quoted context omitted.

This makes it so employees can actually participate in the upside of the risk - something that the current tax setup can make impossible for employees of highly valued private companies. --- I'm Bob, I write a check for $50K to exercise my stock options. They might be worth something some day, I'm taking that risk and working my ass off to see that they are. The year I exercise the options, the gov sees that I've mad…

I understand the intent of the legislation perfectly. How often do you think gains are ever realized by startup employees given stock options?

Not often.

But making it costlier to participate only makes the proposition riskier or fiscally unfeisable.

That hurts employees.

Startups are useful in that they trade off innovation for risk - a handful of startups make huge impacts and grow into successful companies.

People know that when they sign up to work for a startup - finding out they can't realize the upside potential is the surprise.

Re: House Passes Employee Stock Options Bill Aimed at Startups

#26

Post by Eridrus »

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 :-(

Companies have the right of first refusal and don't like lots of unrelated people on their cap table who only hold a small amount of shares, so don't expect this to work out

Re: House Passes Employee Stock Options Bill Aimed at Startups

#27

Post by rplst8 »

harryh wrote: post #8
adanto6840 wrote: post #6

The bill text is here and is pretty easy to decipher: https://www.congress.gov/bill/114th-congress/house-bill/5719

Why all the goofy eligibility rules? Just get rid of the rule where exercising stock options counts as income under the AMT(1). It's line 14 in Part 1 of Form 6251. Just get rid of it! When people talk about our tax system being too complicated bills like this are why. 1. For that matter we should get rid of the AMT entirely. The fact that we have 2 separate tax systems for individuals is insane. That's a bigger stor…

> For that matter we should get rid of the AMT entirely. The fact that we have 2 separate tax systems for individuals is insane.

It really is. The AMT is the perfect example of when you give someone an inch they take a mile, which is why some people fight so hard against the enactment of new taxes.

The AMT was originally enacted to catch a handful (less than 200 I believe) people who were at the time of enactment (1969) very rich and who were paying no taxes. These people had an AGI of over $200,000. That's $1.2 million in today's dollars. The AMT now affects over three million tax payers, mostly because for many years, the exemption was not properly indexed to inflation.

Re: House Passes Employee Stock Options Bill Aimed at Startups

#28

Post by jimbokun »

asah wrote: post #9

Can someone explain: if you exercise and hold the shares (eg leave the company) do you owe tax after year seven, even if the shares remain illiquid? That's the core issue: the IRS is taxing individuals on truly illiquid assets.

True, but is it the IRS' fault if the corporation refuses to create a market for their shares? If the IRS didn't tax these shares, it would quickly become a tax shelter of epic proportions, no?

Re: House Passes Employee Stock Options Bill Aimed at Startups

#29

Post by Eridrus »

ones_and_zeros wrote: post #21
breerly wrote: post #18

Earlier quoted context omitted.

This makes it so employees can actually participate in the upside of the risk - something that the current tax setup can make impossible for employees of highly valued private companies. --- I'm Bob, I write a check for $50K to exercise my stock options. They might be worth something some day, I'm taking that risk and working my ass off to see that they are. The year I exercise the options, the gov sees that I've mad…

I understand the intent of the legislation perfectly. How often do you think gains are ever realized by startup employees given stock options?

Given most employees at "startups" are actually later employees when the companies are larger and less likely to fail, it may actually be that most of them get some sort of payday, even if it's not huge.

Re: House Passes Employee Stock Options Bill Aimed at Startups

#30

Post by MichaelBurge »

rayiner wrote: post #19
harryh wrote: post #8

Earlier quoted context omitted.

Why all the goofy eligibility rules? Just get rid of the rule where exercising stock options counts as income under the AMT(1). It's line 14 in Part 1 of Form 6251. Just get rid of it! When people talk about our tax system being too complicated bills like this are why. 1. For that matter we should get rid of the AMT entirely. The fact that we have 2 separate tax systems for individuals is insane. That's a bigger stor…

We have 52 different tax systems for individuals by my count. All the states have have different rules too. Last several years, my wife and I have had to figure out our taxes five different ways on the same income.

Does Washington D.C. make a 53rd? And though income taxes are managed by the state, I suppose each county collects its own property taxes.
Post reply on HN