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What do you mean by tax planning? If your company IPOs they will withhold shares for you. Only thing to watch for is depending on your income they might underw

by jsh123 7y ago

What do you mean by tax planning? If your company IPOs they will withhold shares for you. Only thing to watch for is depending on your income they might underwithold. There isn’t much more to it than that.

kelnos 7y ago
It depends on what form your equity is in. If you have options, you're responsible for taking care of your own taxes. (And the exercise+hold AMT mess is something to watch out for, though it's a little more difficult to fall into that trap now since the AMT exemption amount was raised.) Even if you have RSUs (where taxes are customarily withheld), the company will withhold at the minimum statutory rates, which may not match up with your personal tax bracket.
- jsh123 7y ago
  Yes mentioned the company might underwithhold. I’m just suggesting it isn’t quite as complicated as it is being made out to be, from personal experience.
heimidal 7y ago
Anyone with a six-figure sale is nearly certain to end up owing more than they withhold (assuming you sell, which you probably should). If a company hasn't IPO'ed, an 83(b) election may also make sense.
- jsh123 7y ago
  The IPO is a taxable event. You’re taxed at the IPO price, and your company should withhold shares based on that price. After whatever lockup you have some fraction of shares remaining. When you sell those and if the price is greater than the IPO price then you have capital gains on whatever shares you still hold. You still owe tax from the IPO. My point is the company will withhold shares from you, but you might need to pay more if they underwitheld for the IPO. This has nothing to do with your capital gains from selling your remaining shares.
  - sjg007 7y ago
    The IPO is not a taxable event.
    - xyzzy_plugh 7y ago
      It's income, which in the USA is generally taxable.
      - sjg007 7y ago
        You only pay tax when you sell your shares or exercise options.
    - usaar333 7y ago
      Parent is presumably referring to RSU releases at IPO which are taxable. You are correct that options and shares are unaffected. https://www.amafinance.org/ipo/overview/ https://www.amafinance.org/ipo/overview/
- acjohnson55 7y ago
  IMO an 83b election only makes sense if you have negligible exercise costs. Otherwise, it's a lot of risk to take on an exit that may never profitably happen.
  - usaar333 7y ago
    Eh, it generally can make sense if you can get QSBS, as that is so favorable. All said, the better companies offer partial recourse loans to early exercise.
    - acjohnson55 7y ago
      My point is that most employees at most startups are going to join after the earliest days, with option grants that will have exercise prices that entail a 4- or 5-figure outlay to exercise. Maybe this is just the east coast, but I've never worked at a company that makes loans to allow for early exercise. I'm not sure I know anyone who has had this situation. Even early exercise is relatively rare here. This is days later, so not sure if you'll see this, but could you explain what QSBS has to do with it?
joshuamorton 7y ago
Exercising options has tax consequences.
- jsh123 7y ago
  Depends if you signed 83b or not. If you’re early you should always do that.
  - fossuser 7y ago
    You can't always, not all companies allow early exercise. If you've been at a private company for a while you may have options that have vested approaching the ten year expiration with a large spread between strike and the fair market value. If these options are ISOs then exercise has a lot of tax consequences to get right (AMT particularly to save some money). If you have NSOs you've still got a lot of tax to deal with on exercise, but you don't have to benefit of getting some tax free below AMT.
rblatz 7y ago
I was taxed at the time of my grant, and then again on the gain when I sell. Had I put them in a self directed IRA i could have bypassed 6 figures of cap gains tax.
- zrail 7y ago
  You can’t contribute in-kind to an IRA.
  - rblatz 7y ago
    Actually that’s a great point. Depending on your company and your role in the company I’m sure there are ways to get around that, but that would require your company to play ball and get creative with you.
- sjg007 7y ago
  The ole mitt Romney.
jaggederest 7y ago
My experience was significantly different. My advice is to consult a tax attorney and accountant with experience in these matters, don't trust the company to do it for you.

by jsh123 7y ago

kelnos 7y ago

It depends on what form your equity is in. If you have options, you're responsible for taking care of your own taxes. (And the exercise+hold AMT mess is something to watch out for, though it's a little more difficult to fall into that trap now since the AMT exemption amount was raised.) Even if you have RSUs (where taxes are customarily withheld), the company will withhold at the minimum statutory rates, which may not match up with your personal tax bracket.

jsh123 7y ago
Yes mentioned the company might underwithhold. I’m just suggesting it isn’t quite as complicated as it is being made out to be, from personal experience.

heimidal 7y ago

Anyone with a six-figure sale is nearly certain to end up owing more than they withhold (assuming you sell, which you probably should). If a company hasn't IPO'ed, an 83(b) election may also make sense.

jsh123 7y ago
The IPO is a taxable event. You’re taxed at the IPO price, and your company should withhold shares based on that price. After whatever lockup you have some fraction of shares remaining. When you sell those and if the price is greater than the IPO price then you have capital gains on whatever shares you still hold. You still owe tax from the IPO. My point is the company will withhold shares from you, but you might need to pay more if they underwitheld for the IPO. This has nothing to do with your capital gains from selling your remaining shares.
- sjg007 7y ago
  The IPO is not a taxable event.
  - xyzzy_plugh 7y ago
    It's income, which in the USA is generally taxable.
    - sjg007 7y ago
      You only pay tax when you sell your shares or exercise options.
  - usaar333 7y ago
    Parent is presumably referring to RSU releases at IPO which are taxable. You are correct that options and shares are unaffected. https://www.amafinance.org/ipo/overview/ https://www.amafinance.org/ipo/overview/
acjohnson55 7y ago
IMO an 83b election only makes sense if you have negligible exercise costs. Otherwise, it's a lot of risk to take on an exit that may never profitably happen.
- usaar333 7y ago
  Eh, it generally can make sense if you can get QSBS, as that is so favorable. All said, the better companies offer partial recourse loans to early exercise.
  - acjohnson55 7y ago
    My point is that most employees at most startups are going to join after the earliest days, with option grants that will have exercise prices that entail a 4- or 5-figure outlay to exercise. Maybe this is just the east coast, but I've never worked at a company that makes loans to allow for early exercise. I'm not sure I know anyone who has had this situation. Even early exercise is relatively rare here. This is days later, so not sure if you'll see this, but could you explain what QSBS has to do with it?

joshuamorton 7y ago

Exercising options has tax consequences.

jsh123 7y ago
Depends if you signed 83b or not. If you’re early you should always do that.
- fossuser 7y ago
  You can't always, not all companies allow early exercise. If you've been at a private company for a while you may have options that have vested approaching the ten year expiration with a large spread between strike and the fair market value. If these options are ISOs then exercise has a lot of tax consequences to get right (AMT particularly to save some money). If you have NSOs you've still got a lot of tax to deal with on exercise, but you don't have to benefit of getting some tax free below AMT.

rblatz 7y ago

I was taxed at the time of my grant, and then again on the gain when I sell. Had I put them in a self directed IRA i could have bypassed 6 figures of cap gains tax.

zrail 7y ago
You can’t contribute in-kind to an IRA.
- rblatz 7y ago
  Actually that’s a great point. Depending on your company and your role in the company I’m sure there are ways to get around that, but that would require your company to play ball and get creative with you.
sjg007 7y ago
The ole mitt Romney.

jaggederest 7y ago

My experience was significantly different. My advice is to consult a tax attorney and accountant with experience in these matters, don't trust the company to do it for you.