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Well-written article and kudos to the author on their career success! One nitpick, the part about comparing possible startup comp in a unicorn exit and as a se
by ramzyo 6y ago
Well-written article and kudos to the author on their career success!
One nitpick, the part about comparing possible startup comp in a unicorn exit and as a senior eng at Facebook over an 8 year period is missing the possible tax benefits of the startup comp. Facebook comp will be taxed as ordinary income as the stock is granted as RSUs (basically 40 - 50% in the US in the $500k/year bracket depending on the state you live in), whereas the majority of a $10 million windfall from being an early employee at a startup that exits after 8 years would likely result in at least half of the tax burden if you did it right and the options were ISOs. With a 4 year standard vesting schedule, the majority of options would have vested far before the startup was a unicorn, and the tax burden at time of option exercise may be very low. Assuming then a long term capital gains rate of 15% at time of sale, the comparison to Facebook comp over the same timeline is about 4x in favor of the startup rather than the 2x the article proposed.
As the author says, though, the startup route is exceedingly risky and very highly likely not to come out ahead.
- richieartoul 6y agoThis is a fair point, I didn’t even think to consider the different tax implications. Thanks for pointing this out!
- ramzyo 6y agoDon’t mention it! Nice article and again kudos to you on the career success.
- wocram 6y agoThen you would also need to include the potentially much worse outcome of paying taxes on the equity and having it later become worthless.
- ramzyo 6y agoYes, the author captures this in their analysis as a risk variable.
- sokoloff 6y agoLTCG rate on a $10M exit is already 20% today (and I think even 23.8% if the Obamacare 3.8% surtax applies, which I’ve not researched recently, but I think does apply). There’s a heavy twin push to find more sources of revenue and to increase taxes on cap gains specifically, so I don’t know that I’d bank on capital gains taxes continuing to stay low long enough to take advantage of them. All taxes on $10M exits are going up; cap gains probably faster than income.
- ramzyo 6y agoInteresting take, could definitely happen. Regarding the rate - LTCG depends on ordinary income level. The 2020 rate for someone earning $150k was 15%, so the $10 million exit in the author’s example would be taxed accordingly. Unless I’m missing something here?
- sokoloff 6y agoLTCG tax rate is based on your AGI (adjusted gross income) not your wage income. Capital gains "count" towards your AGI, so if you have $10M in capital gains and $150K in wage income and nothing else, your AGI is $10,150,000 and your LTCG are taxed at 23.8% (20% + 3.8% surtax).
- ramzyo 6y agoAh, that clears it up for me. Thanks!