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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

#341

Post by uiri »

acjohnson55 wrote: post #300

Idea: the tax code should simply tax startup equity as normal income, at the time of sale, as much as possible. Tax the difference between value at grant time and value at the time of liquidity as ordinary income. Then tax the difference between that price and actual sale price as capital gains, to avoid penalizing employees from holding liquid stock. Equity in a startup is effectively deferred cash compensation, in…

When does the clock for long-term capital gains start?

Better solution: the US tax code should eliminate the short-term/long-term capital gains distinction and just copy the model used in Canada (and elsewhere, I'm sure): capital gains are taxed as ordinary income at a rate of 50¢ on the dollar. So $2 capital gain is equivalent to $1 of ordinary income. The usual rules apply for day traders and such where their "capital gains" are active rather than passive income. The rate doesn't have to be 50 cents - it can be 40 or 60.

Re: Don’t Tax Options and RSUs Upon Vesting

#342

Post by dnautics »

hedora wrote: post #248
sulam wrote: post #188

I'm going to say something that may be unpopular. Hopefully my karma can handle it. The latest analysis I saw of this from Fenwick says that this is only applying to non-qualified stock options. Employees get NSOs when you vest too much to get ISOs in a calendar year, based on the vesting schedule and value at the time of grant, not fair market value at time of vesting of the option. That limit is $100K, for people w…

It is not the strike price or the exercise price. It is more-or-less the fair market value of the options when they vest, but if you need to compute your taxes, consult an accountant. (Yes, this rule is terrible for planning, because you don’t know what fraction of your shares are ISOs until they vest). Today, ISO’s are commonly given to engineers at pre-IPO startups. Nothing says they have to go to execs. Those engi…

With the caveat that I know nothing about tax law, i feel like it's also terrible because it's procyclical for the employee. If you get taxed on vesting and it loses value when you exercise or liquidate you do get to take a capital gains loss, but you're likely to be doing that when you're jobless (due to business cycles and/or personal circumstances) so you're in a lower tax bracket anyways.

Re: Don’t Tax Options and RSUs Upon Vesting

#343

Post by uiri »

walshemj wrote: post #86
richardwhiuk wrote: post #63

Earlier quoted context omitted.

Or startups could pay, you know, salary + bonus like the rest of the world?

That's not the point one of the reasons for Woking at a start up its to make FU money - and big companies also offer stock options not very few FTSE 100 companies don't have share schemes for their employees for example.

Actually curious: Why are you talking about British companies in a thread about American taxes?

Or do you happen to be British so you use FTSE 100 as a shorthand for what most Americans would use the S&P 500 for?

Re: Don’t Tax Options and RSUs Upon Vesting

#344

Post by imh »

exelius wrote: post #208
acchow wrote: post #179

Earlier quoted context omitted.

> So we have to start paying people in actual shares if we want to give equity This is also a big gamble if you're given shares in a non-public company. You pay taxes on these shares at vesting - not only have you reduced your liquidity until IPO/exit, but these shares could end up being worth nothing if the company fails.

That's true if the system continues to work as it does today, yes. But I think the entire model of venture finance is changing towards crypto anyway, making most of these specific points moot. Crypto assets will have different regulations in some form; so I think we should look to shape regulations around cryptocurrency rather than try to cling to an outdated funding model and its associated tax dodges. Does anyone h…

If this is any indication, traditional venture capital seems to be doing pretty well:

https://www.crunchbase.com/lists/recent-funding-rounds/f535c...

And those are mostly just rounds raised today.

Re: Don’t Tax Options and RSUs Upon Vesting

#345

Post by tomc1985 »

zwily wrote: post #276
sulam wrote: post #188

I'm going to say something that may be unpopular. Hopefully my karma can handle it. The latest analysis I saw of this from Fenwick says that this is only applying to non-qualified stock options. Employees get NSOs when you vest too much to get ISOs in a calendar year, based on the vesting schedule and value at the time of grant, not fair market value at time of vesting of the option. That limit is $100K, for people w…

Thanks for this. I suspect that for most of the situations where people were (mistakenly) freaking out about their ISOs being taxed on vest, they will actually be much better off given the removal of AMT in the bill.

How does it apply to options already vested?

Re: Don’t Tax Options and RSUs Upon Vesting

#346

Post by [deleted] »

thanatropism wrote: post #306
loeg wrote: post #257

Earlier quoted context omitted.

> would make startups completely unable to compete with incumbents. They already are mostly unable to compete with larger companies on total compensation. Startup equity is worthless unless you win the lottery. https://danluu.com/startup-tradeoffs/

The Joel on Software post cited on your link is just too good. https://www.joelonsoftware.com/2008/05/01/architecture-astro... > Jeez, we’ve had that forever. When did the first sync web sites start coming out? 1999? There were a million versions. xdrive, mydrive, idrive, youdrive, wealldrive for ice cream. Nobody cared then and nobody cares now, because synchronizing files is just not a killer application. I’m sorry…

[deleted]

Re: Don’t Tax Options and RSUs Upon Vesting

#347

Post by Buge »

exelius wrote: post #337
austenallred wrote: post #318

Earlier quoted context omitted.

Why would valuations change and be more realistic if you tax illiquid stock people can’t afford to pay taxes on the gains of? Valuations would be artificially low if that were the case.

Not artificially low; the idea is to increase liquidity by tying said currencies to semi-liquid ETC/BTC (or whatever). Right now, most post-money valuations are artificially high, which has its own set of problems. These companies are being valued as if they had already accomplished their objectives, and it’s solely because the lack of liquidity allows (and after several rounds of funding, requires) VCs to obfuscate…

I fail to see how cryptocurrencies help here at all. The only thing they do is take stuff that could be done by trusted accountants and lawyers and move it to computers. This is useful in the case where you're in a lawless wild west jurisdictionless hacker internet, or if you can't pay lawyer or accountant fees. But these startups can afford accountants and lawyers to set up contracts, and they are in the US jurisdiction so they can sue if the contracts aren't followed.

So what real change do cryptocurrencies bring here?

Re: Don’t Tax Options and RSUs Upon Vesting

#348

Post by Buge »

tschellenbach wrote: post #185
exelius wrote: post #171

Earlier quoted context omitted.

> No one would want options anymore, which would make it impossible for startups to compete with large, cash-rich incumbents. You're right; nobody would want options. So we have to start paying people in actual shares if we want to give equity. Which means you have to give employees way more of the company than deep-pocketed investment bankers who will still invest -- despite their temper tantrums to the contrary --…

The problem with giving employees shares is that they would either need to pay for those shares or be taxed on their value. This would effectively limit early stage startup participation to those with a nicely filled bank account.

I wonder if this could be solved by a contract saying a private investor will immediately buy back from you whatever percent shares are needed to cover your taxes.

Re: Don’t Tax Options and RSUs Upon Vesting

#349

Post by Buge »

scarmig wrote: post #163
Gargoyle wrote: post #148

Earlier quoted context omitted.

If you're getting options and RSUs, you're going to be upper middle class at least, and thus wealthy by the definitions of most Americans.

Not by the definition of this bill, though, which is what matters. The majority of HN readers are going to see a net increase in taxation, to fund giveaways to the GOP's donor class.

Does this bill define who's wealthy or not?

The bill gets rid of AMT, which many HN readers have been hit by, thus helping them. It also increases the standard deduction, which helps lower income people much more than higher income people.

Re: Don’t Tax Options and RSUs Upon Vesting

#350

Post by wpietri »

Buge wrote: post #347
exelius wrote: post #337

Earlier quoted context omitted.

Not artificially low; the idea is to increase liquidity by tying said currencies to semi-liquid ETC/BTC (or whatever). Right now, most post-money valuations are artificially high, which has its own set of problems. These companies are being valued as if they had already accomplished their objectives, and it’s solely because the lack of liquidity allows (and after several rounds of funding, requires) VCs to obfuscate…

I fail to see how cryptocurrencies help here at all. The only thing they do is take stuff that could be done by trusted accountants and lawyers and move it to computers. This is useful in the case where you're in a lawless wild west jurisdictionless hacker internet, or if you can't pay lawyer or accountant fees. But these startups can afford accountants and lawyers to set up contracts, and they are in the US jurisdic…

I'm with you. The post you're replying to seems like hype word salad to me. E.g., the big-bank experimentation with blockchains I've seen has nothing to do with cryptocurrency; they're just looking at reliable distributed recordkeeping.

Making stocks more liquid early on is the last things startups want; if they effectively become publicly traded, the SEC is going to push for a great deal of transparency that will be at least expensive and possibly harmful.

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