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The comparison math forgot the impact of taxes. The employee's $50K "investment" is pretax money, whereas the investors are putting in after-tax dollars. The
by OstiaAntica 15y ago
The comparison math forgot the impact of taxes. The employee's $50K "investment" is pretax money, whereas the investors are putting in after-tax dollars. The marginal combined state, federal, and payroll tax rate on that second $50,000 in earnings is probably over 40%, so maybe the actual take-home salary given up for the deal is $29,000. Plus the equity earned is taxed at much lower capital gains rates (15%).
- pbreit 15y agoAlso don't forget that if the employee is not accredited, it's unlikely he could (legally) invest at all. So there's an opportunity that must be valued, as well.