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Capital gains tax generally only applies to assets that have been previously taxed as income. Equity grants whether to CEOs or normal employees alike are taxed

by pb7 7y ago

Capital gains tax generally only applies to assets that have been previously taxed as income. Equity grants whether to CEOs or normal employees alike are taxed as income at vesting time with subsequent gains taxed as capital gains. Capital gains taxes apply to both the rich and the poor, with the latter paying a whopping 0%.

mamon 7y ago
>> Capital gains tax generally only applies to assets that have been previously taxed as income No, it does not apply to previously taxed assets at all, only to an additional income you made from those assets. Equity grant is taxed when you excercise your stock options based on their current value. If the stock price goes up later, capital gains tax is only applied to the amount you gained, not the whole sum.
- pb7 7y ago
  >No, it does not apply to previously taxed assets at all, only to an additional income you made from those assets. I would call that applying to previously taxed assets. Unvested RSUs (read: not taxed yet) that gain considerably over many years prior to vesting are still wholly taxed as regular income. Without additional income, there is nothing to be taxed therefore there shouldn't be any confusion as to what I mean by that. Stock options are only one type of equity grants, the other being RSUs which have a cost basis of $0 and therefore the entire sum is subject to income taxes at vesting. Exercising stock options is not free, you must pay to do so at the exercise price which is done using post-tax cash, which again, had to have been taxed as regular income at some point.
jlarocco 7y ago
That's not really true, though. It's true that if I buy some stocks for $100k I have (presumably) already paid taxes on that $100k. But if I sell the stock for $600k two years later, that extra $500k hasn't been taxed as income, and is only taxed as a capital gain. > Capital gains taxes apply to both the rich and the poor, with the latter paying a whopping 0%. Kind of silly to point that out. It's very easy for a "rich" person to have almost all of of their real income come from capital gains, but nearly impossible for many poor people to even have capital gains, much less arrange for it to be most of their income.
- pb7 7y ago
  I’m not sure where we are in disagreement. Rich people don’t become rich without first paying income taxes. Sure, once they have wealth, they mostly pay capital gains tax but if you and I have the same definition of rich, to sustain a luxurious life off investments alone, you had to have paid millions in income taxes which is more than most people will pay in their entire working years. Additionally, turning $100K into $600K in two years is not as easy as you’re portraying it to be.
  - ghettoimp 7y ago
    Hrmn. I suspect many rich people were born that way, and paid no income taxes in utero.

by pb7 7y ago

mamon 7y ago

>> Capital gains tax generally only applies to assets that have been previously taxed as income No, it does not apply to previously taxed assets at all, only to an additional income you made from those assets. Equity grant is taxed when you excercise your stock options based on their current value. If the stock price goes up later, capital gains tax is only applied to the amount you gained, not the whole sum.

pb7 7y ago
>No, it does not apply to previously taxed assets at all, only to an additional income you made from those assets. I would call that applying to previously taxed assets. Unvested RSUs (read: not taxed yet) that gain considerably over many years prior to vesting are still wholly taxed as regular income. Without additional income, there is nothing to be taxed therefore there shouldn't be any confusion as to what I mean by that. Stock options are only one type of equity grants, the other being RSUs which have a cost basis of $0 and therefore the entire sum is subject to income taxes at vesting. Exercising stock options is not free, you must pay to do so at the exercise price which is done using post-tax cash, which again, had to have been taxed as regular income at some point.

jlarocco 7y ago

That's not really true, though. It's true that if I buy some stocks for $100k I have (presumably) already paid taxes on that $100k. But if I sell the stock for $600k two years later, that extra $500k hasn't been taxed as income, and is only taxed as a capital gain. > Capital gains taxes apply to both the rich and the poor, with the latter paying a whopping 0%. Kind of silly to point that out. It's very easy for a "rich" person to have almost all of of their real income come from capital gains, but nearly impossible for many poor people to even have capital gains, much less arrange for it to be most of their income.

pb7 7y ago
I’m not sure where we are in disagreement. Rich people don’t become rich without first paying income taxes. Sure, once they have wealth, they mostly pay capital gains tax but if you and I have the same definition of rich, to sustain a luxurious life off investments alone, you had to have paid millions in income taxes which is more than most people will pay in their entire working years. Additionally, turning $100K into $600K in two years is not as easy as you’re portraying it to be.
- ghettoimp 7y ago
  Hrmn. I suspect many rich people were born that way, and paid no income taxes in utero.