3 ms·

Zuckerberg to Be Taxed at Lower Rate Than Most Facebook Employees

7 points by bmaeser 15y ago

tnicola 15y ago
Can someone explain why are different stock types in the states taxed at different rates? What is the logic behind classification of some stocks as income and some as capital assets? I am quite knowledgeable in finance, but am Canadian and in Canada all stocks are taxed as capital gains and all capital gains are taxed at 25%. We do have a complication when it comes to distribuited dividends, but I imagine so do the States.
- markchristian 15y ago
  I think the issue here is that stocks belong to the employee as soon as they vest, whereas RSUs don't come into existence until the IPO, at which point they're immediately sold. Since the employee never owns them prior to selling, they count as a short-term capital gain.
  - tnicola 15y ago
    Thanks. That's very interesting. I guess it's the same as something that we call 'stock options'. You are granted a right to buy stock for the price it would be when one starts working, but you can't really sell them or cash them until the IPO. For example, if I started working for a company that would have stock price of $2.00 if IPO happened today, they would grant me the right to buy the stock at that price at IPO no matter what the stock price would be at the time. It's called 'exercising' your option. So, if stocks were worth $10.00 at IPO, I would have gained $8.00 on day 1. However, even if you 'exercise' your stock options at IPO (buy stocks for the price of the valuation when they were granted to you), you don't have to cash in your stocks, which means that the gains would not be realized (and thus not taxable) until you do. The tax, however, would be the same as any other capital gains, which is 25%. We do not care how long the gain took to realize, just the fact that the net gain was positive. (You can carry capital losses from the previous years and offset your positive capital gains when you have them.)

3 ms·

Zuckerberg to Be Taxed at Lower Rate Than Most Facebook Employees

7 points by bmaeser 15y ago

tnicola 15y ago
Can someone explain why are different stock types in the states taxed at different rates? What is the logic behind classification of some stocks as income and some as capital assets? I am quite knowledgeable in finance, but am Canadian and in Canada all stocks are taxed as capital gains and all capital gains are taxed at 25%. We do have a complication when it comes to distribuited dividends, but I imagine so do the States.
- markchristian 15y ago
  I think the issue here is that stocks belong to the employee as soon as they vest, whereas RSUs don't come into existence until the IPO, at which point they're immediately sold. Since the employee never owns them prior to selling, they count as a short-term capital gain.
  - tnicola 15y ago
    Thanks. That's very interesting. I guess it's the same as something that we call 'stock options'. You are granted a right to buy stock for the price it would be when one starts working, but you can't really sell them or cash them until the IPO. For example, if I started working for a company that would have stock price of $2.00 if IPO happened today, they would grant me the right to buy the stock at that price at IPO no matter what the stock price would be at the time. It's called 'exercising' your option. So, if stocks were worth $10.00 at IPO, I would have gained $8.00 on day 1. However, even if you 'exercise' your stock options at IPO (buy stocks for the price of the valuation when they were granted to you), you don't have to cash in your stocks, which means that the gains would not be realized (and thus not taxable) until you do. The tax, however, would be the same as any other capital gains, which is 25%. We do not care how long the gain took to realize, just the fact that the net gain was positive. (You can carry capital losses from the previous years and offset your positive capital gains when you have them.)