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It will be interesting to see how many of these IPOing company employees move this year and next to avoid CA capital gains tax. (Asana, Airbnb, Doordash, Lemona
by joshe 6y ago
It will be interesting to see how many of these IPOing company employees move this year and next to avoid CA capital gains tax. (Asana, Airbnb, Doordash, Lemonade are others).
California taxes capital gains at 13%, and 9 states have none (Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming). As an employee, you could save $130,000 on your $1 million dollar gain.
That pays for an awesome rental house in Seattle or the Nevada side of Lake Tahoe. It will be a lot more tempting since you can just ride out covid for a year or so and keep working remotely like you are now. You can time this to your liking since the trigger is you selling the stock, so you can move in 2021 and sell in 2022. Realistically having 1 successful IPO is very lucky, maximizing the return makes a lot of sense.
And I think this is much a much sharper decision than for public company employees. You will have been accumulating stock for 4-10 years and it's been completely illiquid. You get this big hammer of a tax bill when you sell, and it's very tempting to optimize it. This is always happened a little but in covid times, it seems like it will be 10x of the usual. Expect a lot of complaints from Seattle and Austin :-).
- ihatecataxes 6y agoAs a Palantir engineer - all I can say is thank god, I have never worked in CA for a reason...
- philsnow 6y ago> It will be interesting to see how many of these IPOing company employees move this year and next to attempt to avoid CA capital gains tax. (added attempt to) If you worked in California while you were earning that stock / options, they'll come after you for the taxes. California knows. They know that people want to try and have tried to dodge these taxes. They will find you and get their pound of flesh.
- colonelxc 6y agoBut the company has existed for a long time. The higher ups of the company have already vested a lot of stock (which would not be subject to California's reach). I admit I wouldn't know how options would play out here, but if the reason for the move is 'avoid taxes', they have probably done their due diligence.
- mrgordon 6y agoIf your stock options were exercised, you now are a shareholder and you pay taxes in the state of residence at the time of sale. If you don’t live in California (for real) then they aren’t going to be able to tax you on the sale. RSUs with a double trigger on IPO will still be taxed on vesting as if you were in CA.
- opportune 6y agoI've been downvoted for pointing out the same thing on HN before. A bunch of people who have never been granted RSUs or options on here who consider themselves experts on how those are taxed
- gberger 6y agoWait, houses on Lake Tahoe go for $130k!?
- byproxy 6y agoWhy avoid paying taxes?
- apta 6y agoWho in their sane mind wouldn't?
- austhrow743 6y agoMoney can be exchanged for goods and services.
- benhurmarcel 6y agoFrom a European perspective, 13% capital gains tax seem low. It's more in the 30% around here. Anyway, making $1m gain as an employee isn't really a thing here either.
- bananaface 6y agoThat's just state tax. It's on top of federal tax, which at programmer wages is 32%-37%. At the top end you're paying close to 50% total.
- benhurmarcel 6y agoThat's for salary, not capital gain, no?
- joshe 6y agoKind of. The federal rate is 25% for long term holding. But it’s at that higher income tax rate for holding less than a year. In the best case for a CA resident it will be 25% + 13%. But the worst case is as described.
- deleted 6y ago[deleted]