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What would the taxes be if I exercise my startup options?

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Re: What would the taxes be if I exercise my startup options?

#31

Post by gohrt »

harryh wrote: post #26
bmcfeeley wrote: post #20

How concerned should I be about my employer (sizable company, ~300 employees) being reticent to divulge our 409A valuation with me? I've had a hard time (read: never did get; only got my options' fractional ownership in percentage terms after long nagging email chains) in the past getting any information to this effect, and we just raised another round a few months back, so I would like to estimate my tax burden, but…

Very concerned. They have a legal obligation to tell you this number so that you can properly pay your taxes. Companies that aren't willing to share this data are reasonably likely to be screwing you.

They need to share it for your W-2 or similar at tax time, not necessarliy at any other time.

Re: What would the taxes be if I exercise my startup options?

#32

Post by gohrt »

logfromblammo wrote: post #17
cgearhart wrote: post #3

Earlier quoted context omitted.

Tax reform never survives because there is no consensus on how it should be fixed. Some folks think we should "simplify" by eliminating deductions - things like home mortgage interest, child care expenses, medical expenses & health insurance premiums. Other folks think we should "simplify" by eliminating corporate tax breaks & subsidies, and change how we tax things like stock trades & financial instruments. Still ot…

Here's an idea on how to simplify. The IRS sends you a summary from all your various W-2s and 1099s for the year. It has two numbers: what you earned as income, and how much you already paid for income tax this year. And it sends you your tax form. If you earned less than the median annual income for this year, you owe zero. If you paid anything already, you get all of it back with the enclosed check. If you earned m…

you are describing the 1040EZ which approximately already works as you described, for low-income wage-earners.

People who have stocks and mortgages and etc -- non-wage income and deductions, have to go through a more complicated process.

Re: What would the taxes be if I exercise my startup options?

#33

Post by bartc »

bmcfeeley wrote: post #20

How concerned should I be about my employer (sizable company, ~300 employees) being reticent to divulge our 409A valuation with me? I've had a hard time (read: never did get; only got my options' fractional ownership in percentage terms after long nagging email chains) in the past getting any information to this effect, and we just raised another round a few months back, so I would like to estimate my tax burden, but…

If you have vested options, then you can exercise one of them to officially become a shareholder at which point you will have access to a lot of additional information. As only an options holder, there's no legal requirement for them to share that with you.

However, I would be concerned at a fundamental level because, good or bad, they're not being honest with you about the most basic state of the company. You have to ask yourself if that's even the kind of place where you want to be working.

Re: What would the taxes be if I exercise my startup options?

#34

Post by GFK_of_xmaspast »

logfromblammo wrote: post #18
GFK_of_xmaspast wrote: post #14

Earlier quoted context omitted.

> You can't know if your itemized deductions will exceed the standard deduction Yes I could, because I had a rough reckon of what my deductions would have been and knew I didn't have to bother.

That required you to have prior knowledge of what you could have deducted. If you didn't have such knowledge, your ignorance might have caused you to pay a higher amount of tax than you otherwise needed to. This is why automated tax software asks so many questions about potential deductions.

You fill out a form a couple years in a row you start to notice things?

Re: What would the taxes be if I exercise my startup options?

#35

Post by toast0 »

shostack wrote: post #30
toast0 wrote: post #25

Earlier quoted context omitted.

If you're eligible to exercise any options, I would be concerned; you can't make an informed decision without knowing the tax consequences. You might want to phrase it as you'd like to exercise some options, but you need to know the 409a valuation so you know how much AMT you can afford. If you're not yet vested and there's no early exercise provision, you don't need to be super concerned, since you can't take any ac…

Would I be accurate in restating your last point as "if they won't tell you what the shares are valued at or how big the pool is, and they just give you a percentage, you have no clue how much the equity is actually worth?"

Yes, exactly.

Re: What would the taxes be if I exercise my startup options?

#36

Post by delinka »

schmichael wrote: post #21
delinka wrote: post #11

I recently talked to a CFO who put it like this: For the sake of planning : The difference between what you paid (you have to exercise options for this to matter) for your shares and what the are worth (see the company's most recent valuation) is counted as income for the current tax year. If you hold the shares for more than a year, the money you make on a sale is subject to capital gains tax. This is indeed affecte…

I hired a certified tax professional; he had never handled ISOs before and got it wrong. I did it myself, and it wasn't really that bad. Hired a different CPA to double check it, and he said it looked fine. That being said I still suggest to everyone who has never been through it before to get a professional involved.

"I hired a certified tax professional; he had never handled ISOs before and got it wrong."

OK, don't got hire just any professional. Maybe check on their experience first. ;-)

Re: What would the taxes be if I exercise my startup options?

#37

Post by [deleted] »

schmichael wrote: post #21
delinka wrote: post #11

I recently talked to a CFO who put it like this: For the sake of planning : The difference between what you paid (you have to exercise options for this to matter) for your shares and what the are worth (see the company's most recent valuation) is counted as income for the current tax year. If you hold the shares for more than a year, the money you make on a sale is subject to capital gains tax. This is indeed affecte…

I hired a certified tax professional; he had never handled ISOs before and got it wrong. I did it myself, and it wasn't really that bad. Hired a different CPA to double check it, and he said it looked fine. That being said I still suggest to everyone who has never been through it before to get a professional involved.

[deleted]

Re: What would the taxes be if I exercise my startup options?

#38

Post by logfromblammo »

gohrt wrote: post #32
logfromblammo wrote: post #17

Earlier quoted context omitted.

Here's an idea on how to simplify. The IRS sends you a summary from all your various W-2s and 1099s for the year. It has two numbers: what you earned as income, and how much you already paid for income tax this year. And it sends you your tax form. If you earned less than the median annual income for this year, you owe zero. If you paid anything already, you get all of it back with the enclosed check. If you earned m…

you are describing the 1040EZ which approximately already works as you described, for low-income wage-earners. People who have stocks and mortgages and etc -- non-wage income and deductions, have to go through a more complicated process.

If you think the 1040EZ filing process is in any way similar to what I attempted to describe, I fear that my description was grossly inadequate.

Re: What would the taxes be if I exercise my startup options?

#39

Post by schmichael »

delinka wrote: post #36
schmichael wrote: post #21

Earlier quoted context omitted.

I hired a certified tax professional; he had never handled ISOs before and got it wrong. I did it myself, and it wasn't really that bad. Hired a different CPA to double check it, and he said it looked fine. That being said I still suggest to everyone who has never been through it before to get a professional involved.

"I hired a certified tax professional; he had never handled ISOs before and got it wrong." OK, don't got hire just any professional. Maybe check on their experience first. ;-)

Ha, yeah, now I know not all tax professionals are created equal. He of course acted like he knew how to handle it right up until the end and only let it slip once that this was the first time he'd actually handled them. His advice ended up being "they're not taxed, just ignore them until you sell the actual shares" which I knew was wrong.
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