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"The current draft of the Senate Tax Reform Bill would tax stock options and RSUs upon vesting." Ok. I wouldn't panic here. Calm down. How shares are vested i
by ransom1538 9y ago
"The current draft of the Senate Tax Reform Bill would tax stock options and RSUs upon vesting."
Ok. I wouldn't panic here. Calm down.
How shares are vested is up to the board. So, if this were to pass I would just walk into the CEO's office with a few employees and ask to change how shares vest to: "Upon the vesting schedule AND a written letter from the employee requesting vesting. If the letter isn't submitted the shares are not vested." So, if I don't send a letter to the board the shares do not vest. If I want to vest 12 months and leave, I would just submit the letter. Problem solved. How shares are vested is totally made up. You could have them vest when you wear a purple shirt on tuesdays.
- seattle_spring 9y agoWhy would someone from a large publicly traded company panic? Shares already are taxed upon vest there.
- ransom1538 9y agoYep. That isn't about publicly traded companies. The only people that would panic is if you are in a startup that cannot exercise.
- hatred 9y agoYeah, mostly applies to pre-IPO companies offering stock options/RSU's.
- pc2g4d 9y agoLarge publicly-traded companies can also offer RSUs---doesn't this still apply in that scenario?
- kelnos 9y agoIn practice, RSUs already work that way: you're taxed on RSU delivery, which in the case of a public company is almost always the same as the vest date. Usually the company will sell a portion of the RSUs vested to do tax withholding on the spot, and then you're immediately free to hold or sell the remainder. I the case of a private company, RSU vesting/delivery means you owe taxes but (usually) can't sell them to pay for it, which is (also) no different from today.
- bdamm 9y agoI'm under the belief that vest for tax purposes isn't until the share becomes liquid. If the startup can't exercise then, for tax purposes, has the share vested? I believe it has not (and have, in the past, filed taxes on this belief, with the support of my accountant.)
- 10dpd 9y agoYou're describing how things are now and have missed the point - this bill will mean that you will have to pay tax on vesting.
- lgleason 9y agoI would also add a clause where if you meet the timeframe to vest, you can exercise that within a certain time of leaving the company irregardless of the reason for leaving (IE: termination for cause etc.) to ensure that employees get what they earned.
- ddlatham 9y agoI doubt that it's that simple. For tax rules, it's likely more about the notion of when the employee has the effective right to it. If the employee has the right to it, via being able to write a letter requesting it, then it's already vested from the perspective of the IRS, regardless of what word games you play.
- ransom1538 9y ago[deleted]
- wbl 9y agoYou are looking for something like a Rabbi trust.
- deleted 9y ago[deleted]
- jeffdavis 9y agoI think the law has language about how it's vested unless a substantial amount of additional work required of the employee (e.g. continued employment). It's like if a company receives a bill for something they bought in 2016, but don't technically pay it until 2017, the bill would still show up in their 2016 reports.
- cbr 9y agoif a company receives a bill for something they bought in 2016, but don't technically pay it until 2017, the bill would still show up in their 2016 reports. Yes if you're using accrual basis, but not if you're using cash basis: https://en.wikipedia.org/wiki/Basis_of_accounting https://en.wikipedia.org/wiki/Basis_of_accounting (Any big company will be using accrual basis, though.)
- deleted 9y ago[deleted]
- macspoofing 9y agoMaybe. But keep in mind the IRS isn't stupid, and they aren't simply passively taking the letter of the law. They are very much an active participant. For example, they may interpret option vesting in a different way then you just did, and they may prohibit blatant ways of getting around it.
- ibejoeb 9y agoIt really isn't "made up." Issuing equity compensation triggers all sorts of activity. The notion of vesting is that the individual will come to own shares after the conditions are met sufficient to lift the restrictions. The restrictions often include time in service to company ("after 1 year of service, you will earn 100 shares"), performance toward some specific goal ("prototype passed QA by Q3"), and financial performance of the company ("EPS increased by 2%"). In these arrangements, the recipient is agreeing in advance to accept equity as compensation. The company must account for that essentially as if it were cash, and it becomes an income statement item just like any other compensation expense. The economic event, for both the issuer and the recipient, is the moment when there is no material risk of forfeiture. In simple terms: if the company can't take them away from you, they are yours.
- closeparen 9y agoIf the company can’t take them away from you but you’re contractually obligated not to sell for 18+ months, they aren’t really yours.
- ibejoeb 9y agoThat's just twisting words. The time restriction has not been lifted. There are plenty of ways to handle that in the form of instruments like cash-settled SARs.