5 ms·

I'm kinda curious about your >$100k loss on your stock. Your strike price from pre series A options was more than the gains on a near $600 million sale price? M

by deedub 6y ago

I'm kinda curious about your >$100k loss on your stock. Your strike price from pre series A options was more than the gains on a near $600 million sale price? Maybe I am misunderstanding, but how is that possible?

redshirtrob 6y ago
Probably the op spent $100k to exercise the options. It's likely this deal will wipe out all common shareholders and only the VCs will get anything. That's a $100k loss. The op will be spending the next decade writing this loss off against capital gains and earned income. I've been there.
- gkop 6y ago
  Can you write off just the exercise price or the fair market value at time of exercise?
  - redshirtrob 6y ago
    That's a really good question. I'm not certain of the answer. When I had this happen to me the FMV was slightly higher than my exercise price, but not enough to trigger AMT. I know I only wrote off the actual cash I lost, and I used a CPA to help me make sure I did it correctly.
  - zls 6y ago
    I recently asked a tax advisor a similar question: if I do a cashless exercise sale for $5 when the FMV is $6 and my strike price is $2, can I pay income tax only on the $5 sale price? The answer was no: I would owe income at the $6 price and then immediately accrue capital losses on the $1 spread between sale and FMV. I guess that's a longwinded way of saying "I doubt it". Tax law around employee options is brutal. :/
  - ng12 6y ago
    Yes, capped at $3,000/year.
  - patio11 6y ago
    Confirm this with your tax advisor, but FMV at exercise is your basis in later years (generally because the difference in FMV and strike will have caused you a taxable event). c.f. https://www.untracht.com/news-insights/vantagepoint-newsletter/cost-basis-reporting-stock-options/ https://www.untracht.com/news-insights/vantagepoint-newslett... Edit: Consider the case where this were not treated as true. You're clearly not going to pay $2 strike, exercise at $5 ($3 of employment income due to the bargain element), sell at $10 in a later year and pay on $8 of capital gains, right?
    - andrewem 6y ago
      I'll note for conceptual understanding (by people who aren't patio11, who I'm sure understands this all far better than me) the general point that a gain or loss on the sale of a capital asset is how much money you got from selling it minus how much you "paid". More technically, how much you "paid" is called the basis, and you can do things that adjust the basis as patio11 noted above. For general information on this topic see https://www.irs.gov/newsroom/capital-gains-and-losses-10-helpful-facts-to-know-0 https://www.irs.gov/newsroom/capital-gains-and-losses-10-hel...
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richardFINEman 6y ago
If the OP is telling the truth, there is no way he lost money on the stock he bought. The early shares are all up.
- redshirtrob 6y ago
  For the record, I think op is probably speculating a bit. That said, I'm not sure how you can be so sure op's not losing money unless you have intimate knowledge of the cap table and the deal.
  - triceratops 6y ago
    The acquisition share price is usually told to employees. They probably got the information from current employees. Since they are a shareholder, they'll eventually find out anyway.
    - redshirtrob 6y ago
      I was involved in an acquisition as a shareholder. I was nigh impossible to get anything out of the executives. It was an acquihire so maybe things were different.
      - triceratops 6y ago
        That...sounds illegal. You should at least have gotten a document in the mail with the buyout details, after everything was finalized and signed. It may take a few months in some cases but they have to send it out. You're certain you were a shareholder and not an option holder? That is, you had exercised some of your options? Another possibility, since you said it was an acquihire, is the company actually shut down operations and sold off its assets to the buyer. Maybe in that case there would be no share price to report since no shares were bought? I'm not an expert.
        redshirtrob 6y ago
        I was definitely a shareholder. I had early exercised some options, and reached my one year cliff. I believe your conclusion is correct. They shut down the company and sold off assets. The acquihire probably returned some money to the investors. I spoke with (paid) two attorneys (employment and business) at the time and they said there wasn't much I could do. In the grand scheme of things it was small potatoes. I was pissed at the time though.

by deedub 6y ago

redshirtrob 6y ago

Probably the op spent $100k to exercise the options. It's likely this deal will wipe out all common shareholders and only the VCs will get anything. That's a $100k loss. The op will be spending the next decade writing this loss off against capital gains and earned income. I've been there.

gkop 6y ago
Can you write off just the exercise price or the fair market value at time of exercise?
- redshirtrob 6y ago
  That's a really good question. I'm not certain of the answer. When I had this happen to me the FMV was slightly higher than my exercise price, but not enough to trigger AMT. I know I only wrote off the actual cash I lost, and I used a CPA to help me make sure I did it correctly.
- zls 6y ago
  I recently asked a tax advisor a similar question: if I do a cashless exercise sale for $5 when the FMV is $6 and my strike price is $2, can I pay income tax only on the $5 sale price? The answer was no: I would owe income at the $6 price and then immediately accrue capital losses on the $1 spread between sale and FMV. I guess that's a longwinded way of saying "I doubt it". Tax law around employee options is brutal. :/
- ng12 6y ago
  Yes, capped at $3,000/year.
- patio11 6y ago
  Confirm this with your tax advisor, but FMV at exercise is your basis in later years (generally because the difference in FMV and strike will have caused you a taxable event). c.f. https://www.untracht.com/news-insights/vantagepoint-newsletter/cost-basis-reporting-stock-options/ https://www.untracht.com/news-insights/vantagepoint-newslett... Edit: Consider the case where this were not treated as true. You're clearly not going to pay $2 strike, exercise at $5 ($3 of employment income due to the bargain element), sell at $10 in a later year and pay on $8 of capital gains, right?
  - andrewem 6y ago
    I'll note for conceptual understanding (by people who aren't patio11, who I'm sure understands this all far better than me) the general point that a gain or loss on the sale of a capital asset is how much money you got from selling it minus how much you "paid". More technically, how much you "paid" is called the basis, and you can do things that adjust the basis as patio11 noted above. For general information on this topic see https://www.irs.gov/newsroom/capital-gains-and-losses-10-helpful-facts-to-know-0 https://www.irs.gov/newsroom/capital-gains-and-losses-10-hel...
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- deleted 6y ago
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richardFINEman 6y ago

If the OP is telling the truth, there is no way he lost money on the stock he bought. The early shares are all up.

redshirtrob 6y ago
For the record, I think op is probably speculating a bit. That said, I'm not sure how you can be so sure op's not losing money unless you have intimate knowledge of the cap table and the deal.
- triceratops 6y ago
  The acquisition share price is usually told to employees. They probably got the information from current employees. Since they are a shareholder, they'll eventually find out anyway.
  - redshirtrob 6y ago
    I was involved in an acquisition as a shareholder. I was nigh impossible to get anything out of the executives. It was an acquihire so maybe things were different.
    - triceratops 6y ago
      That...sounds illegal. You should at least have gotten a document in the mail with the buyout details, after everything was finalized and signed. It may take a few months in some cases but they have to send it out. You're certain you were a shareholder and not an option holder? That is, you had exercised some of your options? Another possibility, since you said it was an acquihire, is the company actually shut down operations and sold off its assets to the buyer. Maybe in that case there would be no share price to report since no shares were bought? I'm not an expert.
      - redshirtrob 6y ago
        I was definitely a shareholder. I had early exercised some options, and reached my one year cliff. I believe your conclusion is correct. They shut down the company and sold off assets. The acquihire probably returned some money to the investors. I spoke with (paid) two attorneys (employment and business) at the time and they said there wasn't much I could do. In the grand scheme of things it was small potatoes. I was pissed at the time though.