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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

#221

Post by liketochill »

akhosravian wrote: post #198
polishdude20 wrote: post #190

Earlier quoted context omitted.

Why is that even treated as income then? That's like the government asking for more taxes from me because I have the potential to make money in the future if I'm lucky.

Because shares in a company represents something of value. Just because a company’s shares are privately held doesn’t make them worthless. The IRS has ways to estimate valuations of privately held companies. The problem unique to folks likely to be reading here is the exponential growth that can happen in early stage start ups. The options might’ve represented 100k in value when they were granted, but grown to 1m in…

If they become worth zero do you not have a capital loss to deduct from future income? So you would gradually recover the tax paid when you got the now worthless shares in the form of future taxes you don’t have to pay.

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

#222

Post by clintonb »

choppaface wrote: post #86
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…

Some start-ups will both help employees exercise 83b as well as even bonus them the amount to cover the strike. Then if an employee leaves, the non-vested shares are clawed back and the bonus is not returned. If Stripe did this, wouldn’t they have avoided much of the tax issues here? It seems they’re only able to raise in this case because of their strong valuation and success. Like, most companies either could not d…

An 83(b) election is only useful if the value of the shares is low. The income tax is negligible and the capital gains tax is zero. The price of many RSUs was not low when they were granted, so the income tax bill would have still been higher than many could pay.

Edit: Also, RSUs are not eligible for 83(b) elections.

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

#223

Post by scarface74 »

rattray wrote: post #213
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…

FWIW I joined stripe at around 600 people and almost certainly will prove to have done much better there than at faang financially (and quality of life/work). N=1 but I expect the same is true of most people who've worked there even until recently.

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

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

#225

Post by johngladtj »

WA wrote: post #203
paxys wrote: post #47

The article title is mixing up two different problems, and I think that's what is causing all the confusion in this thread. 1. Stripe has to pay $3.5B in taxes. This is unrelated to employee stock. 2. Lots of long term employees have expiring options, and if they exercised them they would face a massive tax bill. To solve both 1 & 2 Strips is doing an additional raise of $2.3B from private investors which will (1) gi…

> 2. Lots of long term employees have expiring options, and if they exercised them they would face a massive tax bill. They = the employees, right? But they also have massive gains, which they then could use to pay these taxes. What’s the problem, except that tax payments aren’t deferred into the future?

The shares are liquid and they are unable to sell, hence they don't have the cash to pay the tax

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

#226

Post by clintonb »

moralestapia wrote: post #106
bzax wrote: post #8

Earlier quoted context omitted.

If you do an 83b election on RSUs, you'd recognize the entire present value of the RSU grant as income in that year, and pay taxes on it. I believe you're then limited to claiming capital losses on that if you leave before it all vests, or it all ends up worthless. Stripe was already worth $9B in 2016. If you joined then, it could have been prohibitively expensive to do an 83b election. The whole point of RSUs is tha…

Great comment. >Stripe was already worth $9B in 2016. If you joined then, it could have been prohibitively expensive to do an 83b election. I don't think anyone that joined on 2016 or after got more than 0.0000001% of equity or whatever, so it wouldn't have been a massive bill. Also, that's the point of 38b anyway. Tax now or later, but tax.

The definition of "massive" differs. Not everyone has $125K laying around to pay the IRS for illiquid RSUs.

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

#227

Post by tsunamifury »

notyourwork wrote: post #167
sillysaurusx wrote: post #143

Earlier quoted context omitted.

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…

> of working very hard, instead of coasting I work at a FAANG, not coasting and make a lot of money and have made a lot of money every year for nearly a decade. I'll continue to make a lot of money and not worry about whether my startup will or won't succeed.

I dunno if I’d be so sure of yourself if I were you.

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

#228

Post by bboygravity »

sillysaurusx wrote: post #177
notyourwork wrote: post #167

Earlier quoted context omitted.

> of working very hard, instead of coasting I work at a FAANG, not coasting and make a lot of money and have made a lot of money every year for nearly a decade. I'll continue to make a lot of money and not worry about whether my startup will or won't succeed.

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?

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

#229

Post by dasil003 »

scarface74 wrote: post #223
rattray wrote: post #213

Earlier quoted context omitted.

FWIW I joined stripe at around 600 people and almost certainly will prove to have done much better there than at faang financially (and quality of life/work). N=1 but I expect the same is true of most people who've worked there even until recently.

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.

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

#230

Post by madaxe_again »

nugget wrote: post #173
sillysaurusx wrote: post #143

Earlier quoted context omitted.

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…

Based on internal data I have from similar companies my guess would be the first 50 employees average about $15-20m each and the next 100 average about $5-10m each just from their initial 4 year grants, with a lot of variation based on team and seniority. Stripe options have probably grown about 100x in value since the Series B so if you were an engineer who joined around that time, received $100k in RSUs, and left u…

Based on personal experience and friends who have been at unicorns in their early days - the first 50 employees average about $0. The next 100 average about $0.

In every case, the stock that the employees holds gets reclassified and diluted until it’s a funky employee-only stock that’s only saleable back to the company at nominal value, but the company isn’t buying.

So sure, maybe there’s some kind of nominal value, but actual cash money? $0.

I hold 10% of a business valued at £150M. My holding is worth £0 because I can never sell it to anyone.

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