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Overall I think average comp full time employees at eaely stage startups will be a big beneficiary. They won't hit the exercise threshold, AMT will be gone, and

Overall I think average comp full time employees at eaely stage startups will be a big beneficiary. They won't hit the exercise threshold, AMT will be gone, and ISO tax benefits and 409A valuation will remain. One problem I see is that the extended exercises that are popular these days convert from ISO to NQOs, so I wonder what that treatment will be like. Contractors lose some flexibility over NQOs, but imho they were unlikely to have extended exercise periods anyways so I think the impact is not as large as communicated? Executive especially at late stage companies lose out because of the exercise cap, but they're doing extremely well anyways so whatever. Employees at late stage companies might be in a bind here. They probably won't hit the ISO exercise cap (BC the value should be 409A based target than preferred price based) but the currently popular method of giving out RSUs that don't officially "vest" until the company goes public (or the employee leaves, I imagine) might get affected, and that's potentially significant.

deleted 9y ago
[deleted]
morgante 9y ago
Why do you assume average employees won't hit the cap? $100k isn't exactly a massive sum in tech.
- dpiers 9y ago
  ISOs are priced at the 409a value, which can be 1/10th of the preferred share price. Generally speaking, the 409a value converges with the preferred price as the company is de-risked and moves closer to IPO.
  - morgante 9y ago
    Right, but for later-stage startups I can certainly imagine average employees hitting the exercise cap.
    - dpiers 9y ago
      Most companies move to RSUs by the time typical employees would hit the exercise cap.
      - hkmurakami 9y ago
        It's as if dpiers read my mind! :) My arguments exactly mirror what he/she has said.
    - djrogers 9y ago
      That cap already exists now and is untouched along with the rest of section 422.
  - hedora 9y ago
    The caps are based on the value of the ISO when it vests, not when it is granted. If you exceed the $100K limit, then the options revert to NQs (and would presumably be subject to retroactive withholding, under the new rules). This will hit companies that are within a few years of IPO particularly hard, since right now, they can use stock incentives as a significant recruitment tool, and large, unknown, multipliers between grant price and vesting prices are the norm. Put another way, this will cripple the hiring ability of companies attempting to grow from $100M to $1B valuations, and make it much more likely for them to exit via acquisition instead of via IPO. This significantly reduces the incentives established companies will have to innovate, and is a classic example of regulatory capture. (Also, other parts of this tax plan will significantly increase taxes for students; especially graduate students, and also people that live in tech hubs like CA and NY. It is an overt attack against startups and other portions of the economy that have created most of the economic growth in the US over the last two decades.)
    - djrogers 9y ago
      This is nothing even close to regulatory capture. It may not be a good thing, but you can't just throw random terms at it and expect them to work... This policy has a) nothing to do with regulators or a regulatory agency, and b) is not a result of a regulated industry subverting the agent of it's regulation. Also, the 100k cap you're complaining about already exists. I'm not sure what your rant even means at this point.
    - cpitman 9y ago
      If I vote for a state government that maintains higher state taxes, why should that decrease what I owe to the nation? Am I getting less benefit from the federal government? Also, those states can always lower their taxes in the future.
perfectstorm 9y ago
> AMT will be gone Trump is doing this to help himself. I read somewhere that he got hit pretty bad on AMT recently.
- matt4077 9y ago
  Let's avoid making the same mistakes the right always makes, namely assuming the worst of people, and always assuming financial motives for peoples' actions. Trump reducing the AMT for himself seems somewhat unlikely, because: = The plan(s) are written by the House and Senate, not the administration. - he doesn't seem to have given any relevant input to these tax plans except asking for lower corporate tax rate (which he hot only partially) - AMT has so many opponents among Republican donors, Trump just doesn't need to get involved. - Trump was hit by AMT because he had large losses that are deductible over a certain number of years. Don't remember the number, but I seem to remember they have run out by now. He'd need a new bankruptcy to keep going. And no, morally doesn't count. - I'm not sure if he is still motivated by money as much as he used to be. It seems to always have been a plot to get recognition by Manhattan's elites, and therefore would have been eclipsed by his other failed attempt, namely politics.
  - refurb 9y ago
    Let's avoid making the same mistakes the right always makes, namely assuming the worst of people This made me chuckle. You're basically telling people to not do what you just did.
- kemiller 9y ago
  Even if he is, the AMT is a pretty spectacularly unfair tax that hits a lot of people it wasn’t meant to.

deleted 9y ago

[deleted]

morgante 9y ago

Why do you assume average employees won't hit the cap? $100k isn't exactly a massive sum in tech.

dpiers 9y ago
ISOs are priced at the 409a value, which can be 1/10th of the preferred share price. Generally speaking, the 409a value converges with the preferred price as the company is de-risked and moves closer to IPO.
- morgante 9y ago
  Right, but for later-stage startups I can certainly imagine average employees hitting the exercise cap.
  - dpiers 9y ago
    Most companies move to RSUs by the time typical employees would hit the exercise cap.
    - hkmurakami 9y ago
      It's as if dpiers read my mind! :) My arguments exactly mirror what he/she has said.
  - djrogers 9y ago
    That cap already exists now and is untouched along with the rest of section 422.
- hedora 9y ago
  The caps are based on the value of the ISO when it vests, not when it is granted. If you exceed the $100K limit, then the options revert to NQs (and would presumably be subject to retroactive withholding, under the new rules). This will hit companies that are within a few years of IPO particularly hard, since right now, they can use stock incentives as a significant recruitment tool, and large, unknown, multipliers between grant price and vesting prices are the norm. Put another way, this will cripple the hiring ability of companies attempting to grow from $100M to $1B valuations, and make it much more likely for them to exit via acquisition instead of via IPO. This significantly reduces the incentives established companies will have to innovate, and is a classic example of regulatory capture. (Also, other parts of this tax plan will significantly increase taxes for students; especially graduate students, and also people that live in tech hubs like CA and NY. It is an overt attack against startups and other portions of the economy that have created most of the economic growth in the US over the last two decades.)
  - djrogers 9y ago
    This is nothing even close to regulatory capture. It may not be a good thing, but you can't just throw random terms at it and expect them to work... This policy has a) nothing to do with regulators or a regulatory agency, and b) is not a result of a regulated industry subverting the agent of it's regulation. Also, the 100k cap you're complaining about already exists. I'm not sure what your rant even means at this point.
  - cpitman 9y ago
    If I vote for a state government that maintains higher state taxes, why should that decrease what I owe to the nation? Am I getting less benefit from the federal government? Also, those states can always lower their taxes in the future.

perfectstorm 9y ago

> AMT will be gone Trump is doing this to help himself. I read somewhere that he got hit pretty bad on AMT recently.

matt4077 9y ago
Let's avoid making the same mistakes the right always makes, namely assuming the worst of people, and always assuming financial motives for peoples' actions. Trump reducing the AMT for himself seems somewhat unlikely, because: = The plan(s) are written by the House and Senate, not the administration. - he doesn't seem to have given any relevant input to these tax plans except asking for lower corporate tax rate (which he hot only partially) - AMT has so many opponents among Republican donors, Trump just doesn't need to get involved. - Trump was hit by AMT because he had large losses that are deductible over a certain number of years. Don't remember the number, but I seem to remember they have run out by now. He'd need a new bankruptcy to keep going. And no, morally doesn't count. - I'm not sure if he is still motivated by money as much as he used to be. It seems to always have been a plot to get recognition by Manhattan's elites, and therefore would have been eclipsed by his other failed attempt, namely politics.
- refurb 9y ago
  Let's avoid making the same mistakes the right always makes, namely assuming the worst of people This made me chuckle. You're basically telling people to not do what you just did.
kemiller 9y ago
Even if he is, the AMT is a pretty spectacularly unfair tax that hits a lot of people it wasn’t meant to.