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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

#281

Post by conjectures »

praestigiare wrote: post #250
wreath wrote: post #240

Earlier quoted context omitted.

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.

It might interest you to look up income and social mobility rankings. In short, you are much more likely to build generational wealth in the Nordics.

Yeah, I'm not sure why people are surprised that having a safety net allows poorer people to take more risks.

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

#282

Post by Keyframe »

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.

Would I own tax then on the classic car I bought 20 years ago which is now worth 10x the buying price and I can actually sell it for that, even though if I won't sell it?

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

#283

Post by refurb »

oblio wrote: post #247
wreath wrote: post #240

Earlier quoted context omitted.

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.

> You dont have free healthcare. You pay for it like tech employees in the US do and you probably get worse service. True, but there's no stress due to possible crazy variations in prices, "in network" - "out of network" garbage, etc. When people talk about "free healthcare", what they're really saying is: "out of pocket healthcare expenses are very small and always capped at a decent level, and I have access to heal…

The problem with those social mobility scores is they rank it by “chance of going from lowest quintile to highest quintile”.

But the quintiles aren't the same.

A good example is Canada vs the US vs the UK.

The top US income quintile is 153,000 USD.

Canada is 131,000 CAD (98,000 USD).

The UK is 87,000 GBP (105,000 USD).

So you could have less social mobility in the US (going from 1st to 4th quintile) than Canada (1st to 5th), but end up better off financially.

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

#284

Post by zamnos »

fnbr wrote: post #191
testfrequency wrote: post #51

Earlier quoted context omitted.

You must be new to startups. Uber and Foursquare are often used as examples on what not to do regarding equity and IPOs

What did Uber do?

So it depends on when you invested in Uber. Because late stage investors (which includes employees compensated with equity) didn't make life changing amounts of money because the price since IPO has actually gone down, unlike, say Apple. But everyone forgets that the VCs, who are the real players in this game, angle invested at sub-cent strike prices. Approximately, what's the math on how much you make if you sell a hundred million shares at $40, with a strike price of $0.0001. Compare that to a later employee 100k shares with a strike price of $39.50.

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

#285

Post by WJW »

sverhagen wrote: post #279
WJW wrote: post #268

Earlier quoted context omitted.

Indeed. Apart from option A (work hard at startup, get rich if startup exits successfully) and option B (work less hard FAANG, get paid with very high likelihood), there are also at least option C (work hard at startup, get almost nothing because the startup fails) and option D (work less hard at FAANG, don't get paid). Option C is much more likely than option A, but option D is much less likely than option B (unless…

Or you'd never qualify for a FAANG, and startups are your only chance to riches...

I think you focused too much on the "FAANG" part of my previous post and not enough on the "odds" part. Let me rephrase my previous point:

    Startups are not a reliable path to riches, anymore than the casino is.
A "normal" career, whether in FAANG or in the less flashy parts of the industry, has a vastly lower variablility than the startup route with the same or higher expected value when measured over a few decades. Don't get fooled by the marketing posts that feature only successful founders while ignoring the mountain of failed startups that cost their early employees millions in opportunity costs.

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

#286

Post by refurb »

cyanydeez wrote: post #114
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…

Why do people act like the tax's is greater than the cash flow, like it's some unthinkable crime to pay tax.

The tax is greater than the cash flow because stock you can't sell provides $0 in cash flow.

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

#287

Post by refurb »

Keyframe wrote: post #282
samclearman wrote: post #132

Earlier quoted context omitted.

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.

Would I own tax then on the classic car I bought 20 years ago which is now worth 10x the buying price and I can actually sell it for that, even though if I won't sell it?

No, because the IRS has special rules about exercised options being recognized as income in the year they were exercised.

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

#288

Post by brandall10 »

sverhagen wrote: post #279
WJW wrote: post #268

Earlier quoted context omitted.

Indeed. Apart from option A (work hard at startup, get rich if startup exits successfully) and option B (work less hard FAANG, get paid with very high likelihood), there are also at least option C (work hard at startup, get almost nothing because the startup fails) and option D (work less hard at FAANG, don't get paid). Option C is much more likely than option A, but option D is much less likely than option B (unless…

Or you'd never qualify for a FAANG, and startups are your only chance to riches...

It does seems that unicorny startups are full of ex-FAANG though.

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

#289

Post by akhosravian »

Ferret7446 wrote: post #257
akhosravian wrote: post #198

Earlier quoted context omitted.

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…

I understand how the law works, but it's quite silly to consider the shares as having value when it's literally impossible to convert them to that "value" to pay the tax. By definition the shares do not have value. It's like if I handed you a coin that I promise is worth one million because I will buy it from you for one million right now, except I won't buy it from you now and I don't plan on buying it from you ever…

In this context companies aren’t a pinky swear “I promise this has value”. A 10x valuation increase for a private company happens for a reason: for VC funded start ups that is often because they did an up round. Someone else put a lot more money on the line than an employee exercising their options would.

I agree with you the current rules kind of suck for employees at start ups increasing in value, but framing values as just made up is overly reductive.

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

#290

Post by j-bos »

madaxe_again wrote: post #230
nugget wrote: post #173

Earlier quoted context omitted.

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,…

Are these experiences in the US? Asking because I imagine conditions would differ country to country.
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