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It's really unfortunate that most startups appear to be set up with ISO shares. The company I am at now is an LLC and distributes RSUs, which meant when I joine

by k2xl 10y ago

It's really unfortunate that most startups appear to be set up with ISO shares. The company I am at now is an LLC and distributes RSUs, which meant when I joined I was able to file an 83/b form which minimizes my tax impact. At my last company, I exercised options. I owe the IRS tens of thousands of dollars due to AMT this year (not that it was unexpected, as I did heavy research beforehand). Can anyone shed light why companies aren't set up to distribute RSU's (and allow employees to fill out an 83/b form within 30 days of being granted?). Is it not preferrable to investors for some reason? The worst part of the AMT and exercising ISO shares at a startup is that it is nearly impossible to make an informed decision on whether or not to exercise (and how many shares to exercise). You can't possibly know your tax liability until next tax season when all your tax forms come in. Last year, I called maybe 5 different tax accountants for advice on how to estimate what my tax impact would be for exercising shares and got 5 different answers. This stuff is COMPLICATED. Finally just got TurboTax and plugged in some guesses of my deductions, etc and got some type of estimate. Filed some 1040ES's last year to minimize the penalty and hopefully will get close. Another sad fact is how few people at startups are even educated on the subject. While one can argue it is up to each employee to do their own research, I think it is in startups ethical interest to have their CFO team give an overview of the stock plan and what kinds of things employees may want to ask their accountants about.

boulos 10y ago
RSUs for early employees makes a lot of sense. The problem is that by granting RSUs, you're effectively forcing the employee to accept taxable property as it vests. For folks that want to early exercise anyway, that's fine (more efficient than paying the company for the options and dealing with the AMT stuff!). But as you get even a little bit down the line, and your company valuation goes up, that's real liability for the employee. Said another way, not everyone early exercises their options, so some folks would prefer not to definitely owe taxes. A lot of these later stage companies (like say Dropbox, and famously Facebook pre-IPO), start blending towards RSUs for exactly this reason though. Shares are nicer than options, but you need to be cognizant of the tax implications (I believe, but haven't experienced it, that even Dropbox does RSU withholding, so employees aren't left figuring out how to pay the IRS thousands of dollars for their illiquid shares). Disclaimer: I'm not a tax professional, lawyer, accountant, or any of that (like you, I just wish at least early employees would get RSUs).
freddyc 10y ago
>The company I am at now is an LLC and distributes RSUs, which meant when I joined I was able to file an 83/b form which minimizes my tax impact. The usual impediment to this is venture funding. VCs generally don't like, and often can't invest in, LLCs so companies are forced down the corporation route.

by k2xl 10y ago

boulos 10y ago

RSUs for early employees makes a lot of sense. The problem is that by granting RSUs, you're effectively forcing the employee to accept taxable property as it vests. For folks that want to early exercise anyway, that's fine (more efficient than paying the company for the options and dealing with the AMT stuff!). But as you get even a little bit down the line, and your company valuation goes up, that's real liability for the employee. Said another way, not everyone early exercises their options, so some folks would prefer not to definitely owe taxes. A lot of these later stage companies (like say Dropbox, and famously Facebook pre-IPO), start blending towards RSUs for exactly this reason though. Shares are nicer than options, but you need to be cognizant of the tax implications (I believe, but haven't experienced it, that even Dropbox does RSU withholding, so employees aren't left figuring out how to pay the IRS thousands of dollars for their illiquid shares). Disclaimer: I'm not a tax professional, lawyer, accountant, or any of that (like you, I just wish at least early employees would get RSUs).

freddyc 10y ago

>The company I am at now is an LLC and distributes RSUs, which meant when I joined I was able to file an 83/b form which minimizes my tax impact. The usual impediment to this is venture funding. VCs generally don't like, and often can't invest in, LLCs so companies are forced down the corporation route.