4 ms·

The whole system of option pricing and taxation is incredibly perverse. Why not just tax when liquidity is realized and cash is in the bank?

by api 4y ago

nostrademons 4y ago
I agree with you, but I'll point out that there are a lot of voices today arguing to tax stocks, crypto, and other property the way stock options are today (eg. wealth tax; tax on crypto->crypto exchanges; proposed tax on unrealized capital gains). The idea that your wealth can increase without you being taxed on it seems to be very unpopular with the general population. Come to think of it, I wonder if the reason for taxing stock options the way they are is because otherwise there'd be a strong incentive to pay in stock rather than cash, and then everyone would be paying capital gains taxes instead of income, and then there'd be a strong call to tax capital gains at the same rates as income and the wealthy & powerful would not enjoy that.
- deleted 4y ago
  [deleted]
s1artibartfast 4y ago
Devils advocate: you are getting you something of value. What if your company payed you with 1,000 lotto tickets. Do you pay taxes on that only if you win? Options have a market value so they are compensation
- api 4y ago
  Yeah, only if you win. Otherwise there isn’t any value. Do you pay taxes on a pat on the back?
  - s1artibartfast 4y ago
    Options and lotto tickets obviously have value. Options cost money to purchase on an stock exchange.
    - api 4y ago
      You’re technically correct. The problem really is that taxing unrealized gains is regressive. The rich can afford to pay these taxes and thus can get and benefit from assets like options. The poor cannot and would therefore be cut out. In a regime where all options are taxed as income less wealthy startup employees for example would be cut out of exit gains. As is usually the case those who want to soak the rich end up soaking the middle class or reducing class mobility while leaving the already rich largely untouched.
      - s1artibartfast 4y ago
        I agree it makes no sense to tax unrealized gains. however, receiving stock itself is a gain. If I gifted you 1000 shares of Apple today, that would be a gain for you. It would also be the basis cost for any future sale. Similarly, if I payed you with 10kg of gold, or a house, or land, it makes sense to tax that transfer event, not just if you sell for cash. In short, it makes sense to test asset transfers, but not appreciation while you hold it. I do agree with a tax deferment for asset transfers where there is no resale market like pre IPO stocks or options. Post IPO is a different story.

The whole system of option pricing and taxation is incredibly perverse. Why not just tax when liquidity is realized and cash is in the bank?

by api 4y ago

The whole system of option pricing and taxation is incredibly perverse. Why not just tax when liquidity is realized and cash is in the bank?

nostrademons 4y ago

I agree with you, but I'll point out that there are a lot of voices today arguing to tax stocks, crypto, and other property the way stock options are today (eg. wealth tax; tax on crypto->crypto exchanges; proposed tax on unrealized capital gains). The idea that your wealth can increase without you being taxed on it seems to be very unpopular with the general population. Come to think of it, I wonder if the reason for taxing stock options the way they are is because otherwise there'd be a strong incentive to pay in stock rather than cash, and then everyone would be paying capital gains taxes instead of income, and then there'd be a strong call to tax capital gains at the same rates as income and the wealthy & powerful would not enjoy that.

deleted 4y ago
[deleted]

s1artibartfast 4y ago

Devils advocate: you are getting you something of value. What if your company payed you with 1,000 lotto tickets. Do you pay taxes on that only if you win? Options have a market value so they are compensation

api 4y ago
Yeah, only if you win. Otherwise there isn’t any value. Do you pay taxes on a pat on the back?
- s1artibartfast 4y ago
  Options and lotto tickets obviously have value. Options cost money to purchase on an stock exchange.
  - api 4y ago
    You’re technically correct. The problem really is that taxing unrealized gains is regressive. The rich can afford to pay these taxes and thus can get and benefit from assets like options. The poor cannot and would therefore be cut out. In a regime where all options are taxed as income less wealthy startup employees for example would be cut out of exit gains. As is usually the case those who want to soak the rich end up soaking the middle class or reducing class mobility while leaving the already rich largely untouched.
    - s1artibartfast 4y ago
      I agree it makes no sense to tax unrealized gains. however, receiving stock itself is a gain. If I gifted you 1000 shares of Apple today, that would be a gain for you. It would also be the basis cost for any future sale. Similarly, if I payed you with 10kg of gold, or a house, or land, it makes sense to tax that transfer event, not just if you sell for cash. In short, it makes sense to test asset transfers, but not appreciation while you hold it. I do agree with a tax deferment for asset transfers where there is no resale market like pre IPO stocks or options. Post IPO is a different story.