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I'm pretty sure it's because his strike price was far lower than the value of those shares. For example, if he pays $100 to get 20 shares at $5/share, but the s
by adt2bt 9y ago
I'm pretty sure it's because his strike price was far lower than the value of those shares. For example, if he pays $100 to get 20 shares at $5/share, but the shares are worth $100 each, he just got $2,000 and will need to pay taxes on that larger amount.
- niuzeta 9y agoRight. So in the eyes of IRS you just didn't buy something, you in fact gained in net worth, except all those new assets you've purchased is illiquid.
- chii 9y agoexcept the valuation is a private estimate. why can't the tax be levied when the same stock is liquidated into cash? then you'd get a real price, rather than an estimate.
- kwillets 9y agoIt adjusts to the price on that day far in the future when employees get out of lockup, but if it spans tax years you're still screwed. Basically, when you have gains, you only ensure realistic taxes when you exercise and sell within the same tax year; otherwise you take a huge risk.
- jsjohnst 9y agoThere’s regulations around the 409a valuation of the company, it’s not completely based on the unicorn fairy dust that VCs use to value a company. Admittedly 409a valuations are far from perfect for many reasons, but they aren’t the same as the valuations you commonly hear when a company closes a round.