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> For example, the 3rd party does not loan the the funds to exercise, but directly pays the cost. That wouldn't work. "Paying the cost" would immediately resul

by junar 5y ago

> For example, the 3rd party does not loan the the funds to exercise, but directly pays the cost. That wouldn't work. "Paying the cost" would immediately result in taxable income to the employee, instead of realizing the income a few years down the line when the debt is canceled. There's no free lunch here. The 3rd party lost money too, because they couldn't collect the debt. If the 3rd party wanted to fully protect the employee, they could have sent an additional payment to cover the taxes. But that just means the 3rd party suffers a greater loss.

s1artibartfast 5y ago
>That wouldn't work. "Paying the cost" would immediately result in taxable income to the employee not to be combative, but why? I'm not talking about a free lunch. The options owner sells/trades the options for a future profit share. They don't make any income in this transaction (or receive any loan). The 3rd party holds the shares from the exercised options. If they sell the shares for a profit, both the 3rd and engineer see income and pay taxes at this time. If the shares are a loss, 3rd party has a loss and engineer sees nothing. Edit... Alternatively, the 3rd party and engineer make an s-corp and the 3rd party provides capital. S-corp loans the engineer cash and engineer sells shares to the S-corp. If the the shares sell below cost, the losses pass though to the engineer they can deduct the losses against the loan forgiveness
- junar 5y ago
  The employee needed more cash to 1) exercise the options, and 2) pay the taxes on the income from the discount of the option. They weren't able to exercise at all without this extra money, so they necessarily need either immediate income or a loan. Also, private companies typically restrict an employee from transferring their stock. That's why employees are stuck waiting on an IPO, acquisition, etc. in the first place.
  - s1artibartfast 5y ago
    Thanks, seems like the transfer is the sticking point

by junar 5y ago

s1artibartfast 5y ago

>That wouldn't work. "Paying the cost" would immediately result in taxable income to the employee not to be combative, but why? I'm not talking about a free lunch. The options owner sells/trades the options for a future profit share. They don't make any income in this transaction (or receive any loan). The 3rd party holds the shares from the exercised options. If they sell the shares for a profit, both the 3rd and engineer see income and pay taxes at this time. If the shares are a loss, 3rd party has a loss and engineer sees nothing. Edit... Alternatively, the 3rd party and engineer make an s-corp and the 3rd party provides capital. S-corp loans the engineer cash and engineer sells shares to the S-corp. If the the shares sell below cost, the losses pass though to the engineer they can deduct the losses against the loan forgiveness

junar 5y ago
The employee needed more cash to 1) exercise the options, and 2) pay the taxes on the income from the discount of the option. They weren't able to exercise at all without this extra money, so they necessarily need either immediate income or a loan. Also, private companies typically restrict an employee from transferring their stock. That's why employees are stuck waiting on an IPO, acquisition, etc. in the first place.
- s1artibartfast 5y ago
  Thanks, seems like the transfer is the sticking point