3 ms·
How could the tax bill be greater than the amount earned?
by quotha 11y ago
How could the tax bill be greater than the amount earned?
- vessenes 11y agoIt's not, it's just that the 'earnings' are highly illiquid.
- landryraccoon 11y agoIt is very possible to lose more money than you earned. The OP may have to pay taxes against the valuation of the company, even if he isn't allowed to sell the shares. Then if the company drops in value, he could easily lose money on the difference.
- fasteddie 11y agoOP isn't gaining any money from this. They are excercising their options: spending $X0,0000 to buy $X,000,000 worth of shares. After exercising, they now own shares. The difference between the purchase price and the value of the shares is income, and OP needs to pay taxes on that income. Note that OP isn't getting money, they are getting the shares, which they can hopefully sell in the future, either in an IPO or acquisition (or future internal round). If they want to sell the shares to get money (to pay the taxes), there are tricky rules involved.