4 ms·

If you know you are about to receive a huge windfall of life changing amounts of money why wouldn't you move to a income tax free state 6 months ahead of time?

djakjxnanjak 8y ago
Your team is located in San Francisco and is iffy about remote work and the last thing you want to do is jeopardize your job or performance-based compensation by ditching at this key time for the company.
viscanti 8y ago
Maybe life is about more than just minimizing tax obligations?
- chrinic83 8y ago
  > Maybe life is about more than just minimizing tax obligations? Life is all about minimizing tax obligations. Most people don't know about the tax minimization strategies (e.g. Puerto Rico, loss harvesting, etc). Simply tell them and they'll do it too. For the lower and middle class, life is about maximizing happiness because the most of their life is spent working or worrying about rent/bills.
lesdeuxmagots 8y ago
Some people absolutely do, but most do not because the trade-off isn't worth it. I know friends of friends who have done so, but they are the exception. Most people who will be making substantial sums from an IPO, and therefore stand to gain substantially by minimising taxes, likely live comfortably in the area. They may have a strong community of friends and family here, well developed hobbies here, enjoy the benefits of living in California, etc. Most people who will make that much money from an IPO likely want to be in a position to make new moves, take on new opportunities, and will want to be in the ecosystem where they can take on meaningful challenges. Establishing a new network in a new geography takes time, and there aren't that many great geographies to do so. Only a handful of states have no cap gains tax, so your options are pretty limited, though states like Texas or Washington could be good new starting places.
wahern 8y ago
Out of principle? There were three founders at one company I worked at. At the time of the IPO one had already moved out-of-state for unrelated reasons, one moved to Texas to avoid taxes, and the other stayed here partly out of principle. (There were already many remote engineers and even upper management--I think the head of product development had moved to Utah long before.) Of the one who moved to Texas, the opinion of most people in the company, including of the other two founders, was that it was a pretty rotten move. But for the social and legal culture of Silicon Valley and California, such success--particularly the magnitude of success--would have been unlikely. I doubt he cared, though. And to be fair to him, he wasn't a loathsome person, nor even an anti-government, Peter Thiel type personality. Otherwise socially responsible people can rationalize bad behavior, especially when its in their own self-interest. But it's not automatic.
- marcrosoft 8y ago
  If principal is your thing why not take the tax difference and appropriate the funds by donating to your principal causes?
  - wahern 8y ago
    If you want low taxes and little government regulation why not move to a banana republic?[1] The answer is because we don't live in a vacuum--policies matter, otherwise you're just pissing into the wind. The entire purpose of government is to overcome the free rider problem. If you can't rely on people acting in the same socially responsible manner, then doing it alone (especially at scale) is not only fruitless, it can be outright counterproductive. Coordination of socially responsible behavior is a mixture of social, political, legal, and cultural (e.g. religious) norms. In a diverse society the political and legals components are particularly important. [1] That's not an entirely rhetorical question. I've met people in South America who have done exactly this. One was a gold standard proponent who found some success in Ecuador as a real estate broker and manager for expat investors. Another was roaming around some pretty sketchy areas of Venezuela, Columbia, and Ecuador looking for a place to settle--his wife got tired of his anti-Bush, anti-Obama rants, called his bluff and told him to go figure things out and call her when he found a place to settle. Those two left the U.S. specifically because of their libertarian political beliefs. I've met many others with more mixed motivations. EDIT: I respect those two for leaving. Remember, Socrates chose death over leaving Athens, but was he trying to make a particular point. Exile was nonetheless an ethically acceptable option, too. What's not ethically acceptable is staying and skirting the rules. The analogous acceptable behavior in this case would be moving to Texas to make your point but paying your California taxes on the IPO as the ethically responsible thing.
luckystartup 8y ago
I'm a non-US citizen who moved to San Francisco to work for a startup. I left that job (and the US) many years ago, but that startup is now a unicorn, and they're very close to an IPO. I believe that if I become a tax resident in Hong Kong, Singapore, Belgium, etc. then I won't need to pay any capital gains tax when I sell my shares. I've heard that California will go after people who try to move to other states to avoid CGT, but I don't know if that applies to non-US citizens who have left the country. (Please let me know if you can recommend a good international tax expert.) I've been living in many different countries since I left the US, so I don't have any strong ties to any specific countries (not even my home country). My shares could be worth about $5M after the IPO. If I wanted to sell most of them and buy VTSAX, then I might end up with a tax bill of $1.5M if I happened to live in a country with a 30% CGT (or if capital gains are treated the same as income.) I don't think it's unethical for me to become a tax resident in some country with no capital gains tax. The alternative is paying a huge amount of money to some random country just because I happened to live there over 183 days. I wouldn't mind moving back to California and paying the tax like everyone else, but it's impossible. There's no visa for people who do freelance work while building a bootstrapped startup. Even if I wanted to go back to a full-time job, it's extremely difficult to get an H-1B or O-1 visa. My startup would need to have at least $100k in ARR before I meet the salary requirements for an H-1B visa. I'd also need to take some investment so that my investors could be on the board and sponsor my H-1B application. My company is already making $50K ARR. I enjoy being independent and going at my own pace, so I don't really need any investors. (EDIT: I just learned about the E-2 and L-1A visas. I might look into those.) If I was still living in California after the IPO, I might end up paying $1M+ in LTCG tax when I sell my shares. I would be very happy to pay this if I could move back now, get a green card, and work on my own company. I guess California and the federal government would be making a bet based on the likelihood of an IPO, which is still nowhere near guaranteed. This is also an extremely rare situation which only applies to a handful of people. But it would be nice if I could get a green card if I promised to live in the US and pay these taxes. The other option is to just live in Hong Kong for > 6 months, sell my shares, and pay $0 in capital gains tax. Then I can move to the US on an EB-5 visa, which only costs $500k.
- taxguy 8y ago
  Countries with no capital gains taxes (on account of capital, not income): New Zealand, Singapore, Hong Kong, Malaysia, Switzerland. There's others, of course.
toast0 8y ago
There's some competing priorities. If you move, chances are you're leaving the job, which you might like, and the job market (yes, other markets exist, but they're not the same). That may mean missing out on future vesting. If you're vesting non-quals or RSUs after the IPO, California is going to tax you on some portion of it anyway, so that makes it harder to stick it to the (California) man. It takes time to make a move, if you haven't already thought about moving to places that happen to be tax free. At the same time, diversifying sooner is definitely worth paying CA tax for. I'd rather pay 13% (or whatever) or $$$$ than 0% of $$$. Anyway, the right thing to do tax wise is somehow get your shares into a roth account while they're not worth much... Then we they become worth a lot, you can diversify without a tax penalty, and you can setup a 'substantiallly equal periodic payment' plan to access the earnings.

djakjxnanjak 8y ago

Your team is located in San Francisco and is iffy about remote work and the last thing you want to do is jeopardize your job or performance-based compensation by ditching at this key time for the company.

viscanti 8y ago

Maybe life is about more than just minimizing tax obligations?

chrinic83 8y ago
> Maybe life is about more than just minimizing tax obligations? Life is all about minimizing tax obligations. Most people don't know about the tax minimization strategies (e.g. Puerto Rico, loss harvesting, etc). Simply tell them and they'll do it too. For the lower and middle class, life is about maximizing happiness because the most of their life is spent working or worrying about rent/bills.

lesdeuxmagots 8y ago

Some people absolutely do, but most do not because the trade-off isn't worth it. I know friends of friends who have done so, but they are the exception. Most people who will be making substantial sums from an IPO, and therefore stand to gain substantially by minimising taxes, likely live comfortably in the area. They may have a strong community of friends and family here, well developed hobbies here, enjoy the benefits of living in California, etc. Most people who will make that much money from an IPO likely want to be in a position to make new moves, take on new opportunities, and will want to be in the ecosystem where they can take on meaningful challenges. Establishing a new network in a new geography takes time, and there aren't that many great geographies to do so. Only a handful of states have no cap gains tax, so your options are pretty limited, though states like Texas or Washington could be good new starting places.

wahern 8y ago

Out of principle? There were three founders at one company I worked at. At the time of the IPO one had already moved out-of-state for unrelated reasons, one moved to Texas to avoid taxes, and the other stayed here partly out of principle. (There were already many remote engineers and even upper management--I think the head of product development had moved to Utah long before.) Of the one who moved to Texas, the opinion of most people in the company, including of the other two founders, was that it was a pretty rotten move. But for the social and legal culture of Silicon Valley and California, such success--particularly the magnitude of success--would have been unlikely. I doubt he cared, though. And to be fair to him, he wasn't a loathsome person, nor even an anti-government, Peter Thiel type personality. Otherwise socially responsible people can rationalize bad behavior, especially when its in their own self-interest. But it's not automatic.

marcrosoft 8y ago
If principal is your thing why not take the tax difference and appropriate the funds by donating to your principal causes?
- wahern 8y ago
  If you want low taxes and little government regulation why not move to a banana republic?[1] The answer is because we don't live in a vacuum--policies matter, otherwise you're just pissing into the wind. The entire purpose of government is to overcome the free rider problem. If you can't rely on people acting in the same socially responsible manner, then doing it alone (especially at scale) is not only fruitless, it can be outright counterproductive. Coordination of socially responsible behavior is a mixture of social, political, legal, and cultural (e.g. religious) norms. In a diverse society the political and legals components are particularly important. [1] That's not an entirely rhetorical question. I've met people in South America who have done exactly this. One was a gold standard proponent who found some success in Ecuador as a real estate broker and manager for expat investors. Another was roaming around some pretty sketchy areas of Venezuela, Columbia, and Ecuador looking for a place to settle--his wife got tired of his anti-Bush, anti-Obama rants, called his bluff and told him to go figure things out and call her when he found a place to settle. Those two left the U.S. specifically because of their libertarian political beliefs. I've met many others with more mixed motivations. EDIT: I respect those two for leaving. Remember, Socrates chose death over leaving Athens, but was he trying to make a particular point. Exile was nonetheless an ethically acceptable option, too. What's not ethically acceptable is staying and skirting the rules. The analogous acceptable behavior in this case would be moving to Texas to make your point but paying your California taxes on the IPO as the ethically responsible thing.

luckystartup 8y ago

I'm a non-US citizen who moved to San Francisco to work for a startup. I left that job (and the US) many years ago, but that startup is now a unicorn, and they're very close to an IPO. I believe that if I become a tax resident in Hong Kong, Singapore, Belgium, etc. then I won't need to pay any capital gains tax when I sell my shares. I've heard that California will go after people who try to move to other states to avoid CGT, but I don't know if that applies to non-US citizens who have left the country. (Please let me know if you can recommend a good international tax expert.) I've been living in many different countries since I left the US, so I don't have any strong ties to any specific countries (not even my home country). My shares could be worth about $5M after the IPO. If I wanted to sell most of them and buy VTSAX, then I might end up with a tax bill of $1.5M if I happened to live in a country with a 30% CGT (or if capital gains are treated the same as income.) I don't think it's unethical for me to become a tax resident in some country with no capital gains tax. The alternative is paying a huge amount of money to some random country just because I happened to live there over 183 days. I wouldn't mind moving back to California and paying the tax like everyone else, but it's impossible. There's no visa for people who do freelance work while building a bootstrapped startup. Even if I wanted to go back to a full-time job, it's extremely difficult to get an H-1B or O-1 visa. My startup would need to have at least $100k in ARR before I meet the salary requirements for an H-1B visa. I'd also need to take some investment so that my investors could be on the board and sponsor my H-1B application. My company is already making $50K ARR. I enjoy being independent and going at my own pace, so I don't really need any investors. (EDIT: I just learned about the E-2 and L-1A visas. I might look into those.) If I was still living in California after the IPO, I might end up paying $1M+ in LTCG tax when I sell my shares. I would be very happy to pay this if I could move back now, get a green card, and work on my own company. I guess California and the federal government would be making a bet based on the likelihood of an IPO, which is still nowhere near guaranteed. This is also an extremely rare situation which only applies to a handful of people. But it would be nice if I could get a green card if I promised to live in the US and pay these taxes. The other option is to just live in Hong Kong for > 6 months, sell my shares, and pay $0 in capital gains tax. Then I can move to the US on an EB-5 visa, which only costs $500k.

taxguy 8y ago
Countries with no capital gains taxes (on account of capital, not income): New Zealand, Singapore, Hong Kong, Malaysia, Switzerland. There's others, of course.

toast0 8y ago

There's some competing priorities. If you move, chances are you're leaving the job, which you might like, and the job market (yes, other markets exist, but they're not the same). That may mean missing out on future vesting. If you're vesting non-quals or RSUs after the IPO, California is going to tax you on some portion of it anyway, so that makes it harder to stick it to the (California) man. It takes time to make a move, if you haven't already thought about moving to places that happen to be tax free. At the same time, diversifying sooner is definitely worth paying CA tax for. I'd rather pay 13% (or whatever) or $$$$ than 0% of $$$. Anyway, the right thing to do tax wise is somehow get your shares into a roth account while they're not worth much... Then we they become worth a lot, you can diversify without a tax penalty, and you can setup a 'substantiallly equal periodic payment' plan to access the earnings.