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RSUs are taxed like income though, so from a tax perspective it’s pretty awful. Being early at a startup with options that you early exercise has far superior t

by tempsy 6y ago

RSUs are taxed like income though, so from a tax perspective it’s pretty awful. Being early at a startup with options that you early exercise has far superior tax benefits.

aqme28 6y ago
Why is that awful? It's compensation and should be treated that way.
- tempsy 6y ago
  Because the tax treatment for options is far superior, especially if you’re relatively early. You’re paying 40%+ in taxes for RSUs as soon as you vest. If you’re able to early exercise stock at a startup you owe minimal taxes when you join a company and then when you sell you’re just paying long term capital gains taxes which is a lot lower than 40%.
  - aqme28 6y ago
    As someone who once had a lot of ISOs, I can tell you that is completely untrue in practice. 40% off of liquid RSUs is far preferable to AMT taxes on something that you are unable to sell and may not ever be able to sell.
    - tempsy 6y ago
      it depends on the situation. that’s why you early exercise when possible. if you’re going to wait to exercise after vesting and the out of pocket costs are too high to exercise then it doesn’t make as much sense. but with RSUs it’s just like income, which again isn’t a great tax treatment especially if you live in a state with state income taxes.
- walshemj 6y ago
  Its not income as in the way your salary is
joshuamorton 6y ago
Only if you're independently wealthy enough to exercise and pay tax now.
triceratops 6y ago
I don't think they're comparable tbh. RSUs have a wildly lower risk profile and higher expected value. ISOs are only more valuable in outlier cases.
- tempsy 6y ago
  Yes then 2020 happened. Startup employees are finally getting liquid across many startups and will come out wildly ahead of most big tech cos.
aardvark291 6y ago
> RSUs are taxed like income though, so from a tax perspective it’s pretty awful. One approach is to accomplish the tax withholding by withholding some of the RSU grant at each vesting. This seems pretty reasonable, since you aren't out any cash to pay the taxes on an illiquid asset.
- deleted 6y ago
  [deleted]

by tempsy 6y ago

RSUs are taxed like income though, so from a tax perspective it’s pretty awful. Being early at a startup with options that you early exercise has far superior tax benefits.

aqme28 6y ago

Why is that awful? It's compensation and should be treated that way.

tempsy 6y ago
Because the tax treatment for options is far superior, especially if you’re relatively early. You’re paying 40%+ in taxes for RSUs as soon as you vest. If you’re able to early exercise stock at a startup you owe minimal taxes when you join a company and then when you sell you’re just paying long term capital gains taxes which is a lot lower than 40%.
- aqme28 6y ago
  As someone who once had a lot of ISOs, I can tell you that is completely untrue in practice. 40% off of liquid RSUs is far preferable to AMT taxes on something that you are unable to sell and may not ever be able to sell.
  - tempsy 6y ago
    it depends on the situation. that’s why you early exercise when possible. if you’re going to wait to exercise after vesting and the out of pocket costs are too high to exercise then it doesn’t make as much sense. but with RSUs it’s just like income, which again isn’t a great tax treatment especially if you live in a state with state income taxes.
walshemj 6y ago
Its not income as in the way your salary is

joshuamorton 6y ago

Only if you're independently wealthy enough to exercise and pay tax now.

triceratops 6y ago

I don't think they're comparable tbh. RSUs have a wildly lower risk profile and higher expected value. ISOs are only more valuable in outlier cases.

tempsy 6y ago
Yes then 2020 happened. Startup employees are finally getting liquid across many startups and will come out wildly ahead of most big tech cos.

aardvark291 6y ago

> RSUs are taxed like income though, so from a tax perspective it’s pretty awful. One approach is to accomplish the tax withholding by withholding some of the RSU grant at each vesting. This seems pretty reasonable, since you aren't out any cash to pay the taxes on an illiquid asset.

deleted 6y ago
[deleted]