6 ms·

Federal AMT is 26-28% plus 7% for California AMT.

by ryan-c 11y ago

1024core 11y ago
In such a situation: would it make sense to move to, say, NV and establish residence there before cashing out? At least you save the 7% CA AMT.
- hueving 11y ago
  Won't work. California IRS hires bloodhounds to sniff this stuff out. If you were employed in California when you were granted the options, you are going to pay CA taxes on them during exercise.
  - x0x0 11y ago
    I'm pretty sure that's not true. It is true that you can't just rent an apartment in seattle, call it a day, and pay no income tax. CA will look closely at things like owning in CA, where bank accounts are, how many days you spend where (keep airline receipts), where you're registered to vote, where your kids/spouse live and attend school, etc. But it is possible to establish residency in a state tax haven and avoid that 12.3% CA income tax. As always, if the amount of money is material, see a tax attorney.
    - hueving 11y ago
      No, when it comes to options, it's where you were a resident when they were given to you.
      - x0x0 11y ago
        Oh, apparently for NSOs. That is not true for ISOs, which the vast majority of startup employees will be granted. see Publication 1004 from the CA Franchise Tax Board, discussing ISOs [1] Nonresident of California on Date of Stock Sale Qualifying Disposition If you exercise an incentive stock option while a California resident or a nonresident and later sell the stock in a qualifying disposition while a nonresident, the income is characterized as income from the sale or disposition of intangible personal property having a source in your state of residence at the time you sold the stock. Accordingly, you are not subject to income tax by California even though the services that gave rise to the grant may have been performed in this state. [pg 10] [1] www.ftb.ca.gov/forms/misc/1004.pdf
        hueving 11y ago
        This covers the stock sale, but what about the liability of taxes from the exercise (diff between strike price and current value)?
        x0x0 11y ago
        For ISOs, you're only subject to AMT on the spread between fmv and strike price at exercise. However, since there is (I think by law?) a 90-day exercise window after leaving employment, there's only 2 circumstances: (1) exercise while employed, and (2) exercise w/in 90 days after leaving employment. In both cases you're almost certain to be a resident of the state in which you were employed. Nothing I know of would require you to pay AMT to the state in which you were granted the options you exercised, but because it's unlikely for you to be a resident of a different state, it's a less interesting question. Also, if your company takes off like a rocket, it's very much in your interest to not procrastinate on exercising vested options, because you want to minimize the AMT-taxed spread between FMV and strike. That increases the likelihood you're a resident of the state in which you were employed when you exercise.
- ryan-c 11y ago
  You may be able to move to avoid the tax, but FTB will scrutinize it. If it appears to be a temporary move just to avoid taxes they will try to collect. https://www.ftb.ca.gov/individuals/fileRtn/Nonresidents_PartYear_Residents.shtml https://www.ftb.ca.gov/individuals/fileRtn/Nonresidents_Part... http://www.forbes.com/sites/robertwood/2012/11/08/leaving-california-and-its-taxes-be-careful/ http://www.forbes.com/sites/robertwood/2012/11/08/leaving-ca... http://money.cnn.com/2013/06/18/pf/taxes/state-tax/ http://money.cnn.com/2013/06/18/pf/taxes/state-tax/
- TheRealWatson 11y ago
  We criticize companies when they do this sort of thing. We should not feel differently, let alone suggest, an individual does that too.
  - mattzito 11y ago
    Isn't it a different situation, though? Often companies move legal jurisdiction to save money on taxes, while leaving their executives, warehouses, assets, etc. in their original locations. In this case you're depriving the original location of the tax base while still consuming the same services. If you as an individual want to physically move yourself to another jurisdiction to avoid tax liability, that's a different matter. You're then consuming services in the state that has opted not to tax you as heavily, presumably at least partially to draw you and your money to that locale. You would also then live there and spend money, bringing benefits to the local economy.
- x0x0 11y ago
  it's weird how early employees / founders who've moved on from successful startups develop a newfound love of Seattle, including many fb posts on how awesome their new home is, eh?

Federal AMT is 26-28% plus 7% for California AMT.

by ryan-c 11y ago

Federal AMT is 26-28% plus 7% for California AMT.

In such a situation: would it make sense to move to, say, NV and establish residence there before cashing out? At least you save the 7% CA AMT.

hueving 11y ago
Won't work. California IRS hires bloodhounds to sniff this stuff out. If you were employed in California when you were granted the options, you are going to pay CA taxes on them during exercise.
- x0x0 11y ago
  I'm pretty sure that's not true. It is true that you can't just rent an apartment in seattle, call it a day, and pay no income tax. CA will look closely at things like owning in CA, where bank accounts are, how many days you spend where (keep airline receipts), where you're registered to vote, where your kids/spouse live and attend school, etc. But it is possible to establish residency in a state tax haven and avoid that 12.3% CA income tax. As always, if the amount of money is material, see a tax attorney.
  - hueving 11y ago
    No, when it comes to options, it's where you were a resident when they were given to you.
    - x0x0 11y ago
      Oh, apparently for NSOs. That is not true for ISOs, which the vast majority of startup employees will be granted. see Publication 1004 from the CA Franchise Tax Board, discussing ISOs [1] Nonresident of California on Date of Stock Sale Qualifying Disposition If you exercise an incentive stock option while a California resident or a nonresident and later sell the stock in a qualifying disposition while a nonresident, the income is characterized as income from the sale or disposition of intangible personal property having a source in your state of residence at the time you sold the stock. Accordingly, you are not subject to income tax by California even though the services that gave rise to the grant may have been performed in this state. [pg 10] [1] www.ftb.ca.gov/forms/misc/1004.pdf
      - hueving 11y ago
        This covers the stock sale, but what about the liability of taxes from the exercise (diff between strike price and current value)?
        x0x0 11y ago
        For ISOs, you're only subject to AMT on the spread between fmv and strike price at exercise. However, since there is (I think by law?) a 90-day exercise window after leaving employment, there's only 2 circumstances: (1) exercise while employed, and (2) exercise w/in 90 days after leaving employment. In both cases you're almost certain to be a resident of the state in which you were employed. Nothing I know of would require you to pay AMT to the state in which you were granted the options you exercised, but because it's unlikely for you to be a resident of a different state, it's a less interesting question. Also, if your company takes off like a rocket, it's very much in your interest to not procrastinate on exercising vested options, because you want to minimize the AMT-taxed spread between FMV and strike. That increases the likelihood you're a resident of the state in which you were employed when you exercise.
ryan-c 11y ago
You may be able to move to avoid the tax, but FTB will scrutinize it. If it appears to be a temporary move just to avoid taxes they will try to collect. https://www.ftb.ca.gov/individuals/fileRtn/Nonresidents_PartYear_Residents.shtml https://www.ftb.ca.gov/individuals/fileRtn/Nonresidents_Part... http://www.forbes.com/sites/robertwood/2012/11/08/leaving-california-and-its-taxes-be-careful/ http://www.forbes.com/sites/robertwood/2012/11/08/leaving-ca... http://money.cnn.com/2013/06/18/pf/taxes/state-tax/ http://money.cnn.com/2013/06/18/pf/taxes/state-tax/
TheRealWatson 11y ago
We criticize companies when they do this sort of thing. We should not feel differently, let alone suggest, an individual does that too.
- mattzito 11y ago
  Isn't it a different situation, though? Often companies move legal jurisdiction to save money on taxes, while leaving their executives, warehouses, assets, etc. in their original locations. In this case you're depriving the original location of the tax base while still consuming the same services. If you as an individual want to physically move yourself to another jurisdiction to avoid tax liability, that's a different matter. You're then consuming services in the state that has opted not to tax you as heavily, presumably at least partially to draw you and your money to that locale. You would also then live there and spend money, bringing benefits to the local economy.
x0x0 11y ago
it's weird how early employees / founders who've moved on from successful startups develop a newfound love of Seattle, including many fb posts on how awesome their new home is, eh?