Aren't RSUs already taxed upon vesting? How does this change anything for RSUs?
Don’t Tax Options and RSUs Upon Vesting
361–370 of 388 posts
Re: Don’t Tax Options and RSUs Upon Vesting
#362Aren't RSUs already taxed upon vesting? How does this change anything for RSUs?
My reading is, this change won't affect RSUs those can be traded in public market. It will, however, have huge impact on paper money, because you are taxed in advance, and the return might be zero.
Re: Don’t Tax Options and RSUs Upon Vesting
#363Earlier quoted context omitted.
At this point, unless you're C-suite, most startups are a really bad bet compared to the BigCos paying out anywhere from $250K-$1M annually depending on your skill set and experience. What's happening now IMO is that the hot talent has figured this out and they have accepted positions at Tesla, Salesforce, Google, Facebook, Apple, or Amazon. That said, I know someone who walked away from a $10M package over 4 years t…
On the other hand, even $1M/year doesn't look good compared to what you would have made via options/RSUs if you were employee < 10 at Facebook/Google/Amazon...
Getting a few downvotes for this comment but my point is I think it's too simplistic to frame it as options are junk, it's a rigged lotto for naive young guns yada yada. Sure, the stats aren't great but if you're young, talented, looking for a thrill and aware how the game is stacked, I don't think options/RSUs are bad 100% of the time.
Personally, I'd like that road to always exist and make the choice myself rather than having it disappear from the tech scene completely. I personally know more people that have done well out of startup stock grants than I do earning >$500K in tech.
A lot of the US's problems with share options could be solved with saner tax. It seems bonkers to me that you are taxed when you exercise rather than when you sell.
Re: Don’t Tax Options and RSUs Upon Vesting
#364Earlier quoted context omitted.
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?
I was contrasting the experience of share schemes in the UK which are a no brainer with effectively zero tax implications rather than the currently broken system the US has
Re: Don’t Tax Options and RSUs Upon Vesting
#365Earlier quoted context omitted.
Its not that trivial. ISO's have a $100k limit.
Yes, but that’s $100k worth of vesting per year based on the value at grant date . Very few situations exceed that in illiquid companies. [1] http://www.naspp.com/blog/2009/08/iso-100000-limitation.html
> Yes, but that’s $100k worth of vesting per year based on the value at grant date. Very few situations exceed that in illiquid companies.
That's... not rare at all. For a company with a $5 million valuation, you only have to be offered 2% of the company in order to hit that cap. An early employee could easily hit that. And of course, as the company grows, it becomes easier and easier to hit that cap, because it's based on an absolute dollar value (the valuation of a company will always grow faster than the percentage offered will shrink - or to look at it another way, if it doesn't, you probably don't want to exercise those options anyway, so the conversation is moot).
Re: Don’t Tax Options and RSUs Upon Vesting
#366Fortunately I am tax resident in a country where I will pay taxes on my stock (options) no sooner (actually up to a year later) than when I make money off them with a simple CGT tax.
Taxing options before they are exercised and before people made actual dollars off them is just crazy.
Unless you are a founder, stock options is just a nice lottery ticket on top of your salary.
Re: Don’t Tax Options and RSUs Upon Vesting
#367Earlier quoted context omitted.
> A friendly reminder that it's VC's like Fred Wilson who insist on provisions in option grants that require exercise within 90 days of leaving a company. Well, except that the IRS also has a say in this as well. The IRS won't let companies issue ISOs with no expiration date like that; if the company tries, they'll be treated as NSOs for tax reasons, which defeats the whole point. There was actually a bill last year…
> if the company tries, they'll be treated as NSOs for tax reasons, which defeats the whole point. How does that defeat the whole point? The entire point of ISOs is that you can exercise without being taxed immediately. After leaving a company, I would much rather have NSOs that I can hold onto, unexercised, until after a liquidity event when the alternative is having nothing. (I mean, really, though, overall the nee…
> How does that defeat the whole point? The entire point of ISOs is that you can exercise without being taxed immediately.
Not exactly - you're still taxed, but only via AMT, not regular income tax.
> After leaving a company, I would much rather have NSOs that I can hold onto, unexercised, until after a liquidity event when the alternative is having nothing.
Sure, but that's not really an option either. NSOs also expire (and again, the requirement for having an expiration comes from the IRS). So if the liquidity event takes too long to happen, you might still end up with nothing. There are a number of companies that are already bumping against this problem.
> (I mean, really, though, overall the need for ISOs is ridiculous: the US is insane for taxing unrealized gains in the first place.)
That's not what's happening. ISOs exist in order to allow companies to provide shares to employees below market rate at the day they vest. The difference between market rate and the actual rate paid is taxable, because that does represent a gain realized.
This is only a problem for companies that expect to grow rapidly (ie: startups). If the growth rate is low, the spread isn't large enough to hit the thresholds to be taxed - or, if it is, not large enough for those taxes to be burdensome. But since startups plan to grow very rapidly, everyone (from founders and early employees to late-stage-but-pre-IPO employees) get the short end of the stick.
Re: Don’t Tax Options and RSUs Upon Vesting
#368Idea: 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 "capi…
I'd start the clock either at grant time or vest time. After all, that part of your comp is locked up and you're investing your sweat equity in the company.
Re: Don’t Tax Options and RSUs Upon Vesting
#369Earlier quoted context omitted.
Yes, but that’s $100k worth of vesting per year based on the value at grant date . Very few situations exceed that in illiquid companies. [1] http://www.naspp.com/blog/2009/08/iso-100000-limitation.html
> Yes, but that’s $100k worth of vesting per year based on the value at grant date. Very few situations exceed that in illiquid companies. That's... not rare at all. For a company with a $5 million valuation, you only have to be offered 2% of the company in order to hit that cap. An early employee could easily hit that. And of course, as the company grows, it becomes easier and easier to hit that cap, because it's ba…
So essentially you have a linear limit to the one part that is promised to be potentially exponential?
Re: Don’t Tax Options and RSUs Upon Vesting
#370The importance of this change can’t be understated; this effectively kills compensation at startups in the form of equity, and would make startups completely unable to compete with incumbents. Anyone that has options at a company that grows quickly would be paying tens or hundreds of thousands in taxes to keep their equity, which is still effectively a very risky bet that a company will end up huge. No one would want…
Can I give back my options if this bill passes? I'm literally sick now reading this. What I thought was a great part of my compensation package is literally going to bankrupt my family.
This only affects RSUs and NSOs. I assume you have ISOs