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On this April 13 in these United States, I can't help but think of the incredible inconvenience of how RSUs and shares sold seem to be calculated for the sake o

On this April 13 in these United States, I can't help but think of the incredible inconvenience of how RSUs and shares sold seem to be calculated for the sake of income taxes. Please just add it up and send me the bill. I don't want to pay more than what's due. And I don't want to cheat. For whatever reason, the typical tax interview software guesses wrong or has insufficient inputs when I feed it info from employer + brokerage. So what remains feels like guesswork with liability on both ends.

toast0 1y ago
RSUs aren't really that bad, unless your employer does sell to cover in annoying ways. Net share withholding works out super simple, the shares that weren't withheld are at the brokerage with the correct basis, and the income and withholding are reported accurately on your w-2. Options do get pretty nasty if you exercise and hold, when the fair market value is higher than the fair market value; because then you have to have an AMT return and a regular return and reconcile them. ESPP with a discount was pretty bad the last time I had it; the brokerage said they were specifically required by IRS rules to report the wrong cost basis, and you had to adjust it when you sold, or you'd have the discount reported on your w-2 and again as a capital gain. Maybe that changed, capital gains reporting has changed over time.
- Thorrez 1y ago
  I agree options are worse than RSUs. But RSUs are very bad. 3 reasons: 1. My RSUs vest monthly. I've been selling immediately. For the last ~2 years, I guess I've been unlucky, and the sales have generally been small losses. Each of those sales gets washed by a vest that occurred either a month before or a month after. I used to track these by hand in a spreadsheet. It become essentially impossible due to increasing complexity every year caused by the long chains of vest+sale. Now I wrote a 1000+ line Python program to calculate my wash sales. It probably took 20+ hours to write. It takes about 30s to run, that's how large the vest+sale graph is (and the program isn't optimized for runtime). A single sale is now being washed by chains of vest+sale that are extremely long. And due to each vest involving different amounts of fractional shares due to changing compensation and changing tax rates, the washes are constantly doing partial washes, that split lots into sublots. So a single sale might involve many many sublots. The holding period is also propagated to the new lot. The chains are starting to get so long, that if this were to continue a few more years, I would have some sales that are partially long term (>= 1 year) and partially short term, which I can't find any information online about how to file. It takes me hours to format my data from my 1099B and statements into a CSV to put into the program, and hours more to take the output CSV and put it into Turbotax. Quarterly vests would partially solve this problem (you would still get washes caused by multiple vests happening on the say day sold for a loss washing each other, but at least it wouldn't propagate to future or past vests). I have now resolved to never sell for a loss (where loss is defined as for any sublot within the lot, the sale price is lower than the original basis + the basis added by all the previous sells washed by this sublot's vest), to avoid this problem. This may mean I have to hold on to stocks that I want to sell, potentially until I die. 2a. I live in CA, but worked from MI a few days a few years back. That means I now have to pay MI tax for 4 years. I receive ~48 vests per year (monthly vests of 4 different grants (from the 4 prior years)). For each of those ~48 vests, I need to calculate what percent of the days between grant and vest I worked in MI, and pay that amount of MI tax on that vest. Turbotax has some bugs related to MI taxes and 401ks and IRAs. Even though my 401ks and IRAs have nothing to do with MI, I now have to deal with these Turbotax bugs every year because I have to file MI taxes. 2b. If you need to file NY taxes as a non-resident (like I have to do for MI), it's even worse, because not only do you need to do that calculation for each vest (~48/year in my case), but you also need to file a new IT-203-F form for each vest. That's 48 IT-203-Fs to file each year. And each one is a complex form involving workdays, weekdays, holiday days, sick days, vacation days, etc. 3. If you move between states with different tax rates, your vests are taxed completely at the new state's tax rate. They're also taxed proportionally (based on time between grant and vest) at your old state's tax rate. So they're double taxed. You do end up with a tax credit that undoes the smaller of the taxes. But this means that when you move, for 4 years you're taxed at the maximum tax rate of the 2 states (on at least some portion of the vests). This makes WA->CA movers mad, because all they have to pay CA tax on 100% of their vests immediately. It also makes CA->WA movers mad, because they have to pay CA tax for 4 years on some portion of their vests. I dearly wish to be paid in cash.
  - jackcosgrove 1y ago
    Wall Street pays cash. Trading firms pay cash. Cash is the best form of compensation because it's the most fungible*. If you really believe your employer's stock will double in value, you can take your cash bonus and buy shares of it. Of course if you're that confident in your market prediction power you're in the wrong line of work. Wall Street pays cash because it gives employees the power to invest it however they wish (read: no one knows the future so they invest in a diversified basket of assets). The only downside of all cash compensation is it attracts mercenaries. Personally I find believers and missionaries more pleasant to work with. * All else being equal, such as the payout schedule.
    - scarface_74 1y ago
      Why would I be a “believer” or missionary in a for profit company? It’s a business transaction. I give them labor and they give me money.
      - jjeaff 1y ago
        if you accept a large portion of your compensation in the form of stock, then you are pretty much a de facto believer.
        scarface_74 1y ago
        Yes and when I did receive a large portion of my compensation in stock, I had it set to sell all as soon as it vested and diversified it. If I had gotten the same amount of compensation in cash, I wouldn’t have put 25% of my compensation in AMZN. So why would I keep my vested RSUs? In fact this year I will get the same amount in cash that I did in 2022 in cash + RSUs. I have no plans on putting 25% of my compensation in any one stock. Selling my “equity” in a private company once it vested wouldn’t have been an option. Note for those who don’t know: Amazon has a 5/15/40/40 vesting schedule with their first four year offer. The first two years you get a large pro rated cash signing bonus to make up for the back heavy vesting.
    - 1y ago
- JumpCrisscross 1y ago
  RSUs in private companies are super illiquid.
  - paxys 1y ago
    You don't have to pay tax if your RSUs aren't liquid.
    - JumpCrisscross 1y ago
      > You don't have to pay tax if your RSUs aren't liquid Sure. You also don’t get to turn them into cash the way shareholders can. Consider that it’s been VCs most vocally singing their praises.
    - doktorhladnjak 1y ago
      This is not true at all. It only has to do with if you have "substantial risk of forfeiture". If they are your shares to own forever, the IRS considers receiving them taxable. This is why double trigger RSUs have expiration dates. It's possible they never become liquid. Therefore they're not your property yet. Therefore you don't owe tax until they are. Or they expire worthless someday, and you don't owe anything.
- unethical_ban 1y ago
  I wonder if you worked for a certain california-named company based in another california city... Your experience sounds a lot like mine. They sell-to-cover when my stocks vest quarterly, which pisses me off because the stock constantly goes up and I wish I could keep them until the time my tax bill is due. And, I have to manually report to the taxman all the money paid via those sell-to-covers, because even though eTrade sends me the transaction details each year, and they clearly tell the IRS how many stocks I got, they don't tell the IRS how much tax I already paid on it.
  - scarface_74 1y ago
    When I worked for the company named after a rain forest, we had the choice of sell to cover, sell all or pay taxes without selling shares. I always chose to sell all. I would never have taken 25%-30% of my hypothetical cash compensation and bought one stock. Why would I keep my RSUs? Now I work at a smaller company doing the same thing (cloud consulting) making the same amount all cash. I much prefer that over cash + RSUs.
lopkeny12ko 1y ago
> Please just add it up and send me the bill. I don't want to pay more than what's due. And I don't want to cheat. I have a hard time understanding this comment because this is exactly what employers do when paying out RSUs. At the end of the year, you get a 1099 indicating the fair market value of shares you've received. There's no trickery here--this is literally the amount you owe income tax on. I'm not sure what tax software you're using that requires you to guess inputs and numbers. TurboTax makes this trivially straightforward.

toast0 1y ago

RSUs aren't really that bad, unless your employer does sell to cover in annoying ways. Net share withholding works out super simple, the shares that weren't withheld are at the brokerage with the correct basis, and the income and withholding are reported accurately on your w-2. Options do get pretty nasty if you exercise and hold, when the fair market value is higher than the fair market value; because then you have to have an AMT return and a regular return and reconcile them. ESPP with a discount was pretty bad the last time I had it; the brokerage said they were specifically required by IRS rules to report the wrong cost basis, and you had to adjust it when you sold, or you'd have the discount reported on your w-2 and again as a capital gain. Maybe that changed, capital gains reporting has changed over time.

Thorrez 1y ago
I agree options are worse than RSUs. But RSUs are very bad. 3 reasons: 1. My RSUs vest monthly. I've been selling immediately. For the last ~2 years, I guess I've been unlucky, and the sales have generally been small losses. Each of those sales gets washed by a vest that occurred either a month before or a month after. I used to track these by hand in a spreadsheet. It become essentially impossible due to increasing complexity every year caused by the long chains of vest+sale. Now I wrote a 1000+ line Python program to calculate my wash sales. It probably took 20+ hours to write. It takes about 30s to run, that's how large the vest+sale graph is (and the program isn't optimized for runtime). A single sale is now being washed by chains of vest+sale that are extremely long. And due to each vest involving different amounts of fractional shares due to changing compensation and changing tax rates, the washes are constantly doing partial washes, that split lots into sublots. So a single sale might involve many many sublots. The holding period is also propagated to the new lot. The chains are starting to get so long, that if this were to continue a few more years, I would have some sales that are partially long term (>= 1 year) and partially short term, which I can't find any information online about how to file. It takes me hours to format my data from my 1099B and statements into a CSV to put into the program, and hours more to take the output CSV and put it into Turbotax. Quarterly vests would partially solve this problem (you would still get washes caused by multiple vests happening on the say day sold for a loss washing each other, but at least it wouldn't propagate to future or past vests). I have now resolved to never sell for a loss (where loss is defined as for any sublot within the lot, the sale price is lower than the original basis + the basis added by all the previous sells washed by this sublot's vest), to avoid this problem. This may mean I have to hold on to stocks that I want to sell, potentially until I die. 2a. I live in CA, but worked from MI a few days a few years back. That means I now have to pay MI tax for 4 years. I receive ~48 vests per year (monthly vests of 4 different grants (from the 4 prior years)). For each of those ~48 vests, I need to calculate what percent of the days between grant and vest I worked in MI, and pay that amount of MI tax on that vest. Turbotax has some bugs related to MI taxes and 401ks and IRAs. Even though my 401ks and IRAs have nothing to do with MI, I now have to deal with these Turbotax bugs every year because I have to file MI taxes. 2b. If you need to file NY taxes as a non-resident (like I have to do for MI), it's even worse, because not only do you need to do that calculation for each vest (~48/year in my case), but you also need to file a new IT-203-F form for each vest. That's 48 IT-203-Fs to file each year. And each one is a complex form involving workdays, weekdays, holiday days, sick days, vacation days, etc. 3. If you move between states with different tax rates, your vests are taxed completely at the new state's tax rate. They're also taxed proportionally (based on time between grant and vest) at your old state's tax rate. So they're double taxed. You do end up with a tax credit that undoes the smaller of the taxes. But this means that when you move, for 4 years you're taxed at the maximum tax rate of the 2 states (on at least some portion of the vests). This makes WA->CA movers mad, because all they have to pay CA tax on 100% of their vests immediately. It also makes CA->WA movers mad, because they have to pay CA tax for 4 years on some portion of their vests. I dearly wish to be paid in cash.
- jackcosgrove 1y ago
  Wall Street pays cash. Trading firms pay cash. Cash is the best form of compensation because it's the most fungible*. If you really believe your employer's stock will double in value, you can take your cash bonus and buy shares of it. Of course if you're that confident in your market prediction power you're in the wrong line of work. Wall Street pays cash because it gives employees the power to invest it however they wish (read: no one knows the future so they invest in a diversified basket of assets). The only downside of all cash compensation is it attracts mercenaries. Personally I find believers and missionaries more pleasant to work with. * All else being equal, such as the payout schedule.
  - scarface_74 1y ago
    Why would I be a “believer” or missionary in a for profit company? It’s a business transaction. I give them labor and they give me money.
    - jjeaff 1y ago
      if you accept a large portion of your compensation in the form of stock, then you are pretty much a de facto believer.
      - scarface_74 1y ago
        Yes and when I did receive a large portion of my compensation in stock, I had it set to sell all as soon as it vested and diversified it. If I had gotten the same amount of compensation in cash, I wouldn’t have put 25% of my compensation in AMZN. So why would I keep my vested RSUs? In fact this year I will get the same amount in cash that I did in 2022 in cash + RSUs. I have no plans on putting 25% of my compensation in any one stock. Selling my “equity” in a private company once it vested wouldn’t have been an option. Note for those who don’t know: Amazon has a 5/15/40/40 vesting schedule with their first four year offer. The first two years you get a large pro rated cash signing bonus to make up for the back heavy vesting.
  - 1y ago
JumpCrisscross 1y ago
RSUs in private companies are super illiquid.
- paxys 1y ago
  You don't have to pay tax if your RSUs aren't liquid.
  - JumpCrisscross 1y ago
    > You don't have to pay tax if your RSUs aren't liquid Sure. You also don’t get to turn them into cash the way shareholders can. Consider that it’s been VCs most vocally singing their praises.
  - doktorhladnjak 1y ago
    This is not true at all. It only has to do with if you have "substantial risk of forfeiture". If they are your shares to own forever, the IRS considers receiving them taxable. This is why double trigger RSUs have expiration dates. It's possible they never become liquid. Therefore they're not your property yet. Therefore you don't owe tax until they are. Or they expire worthless someday, and you don't owe anything.
unethical_ban 1y ago
I wonder if you worked for a certain california-named company based in another california city... Your experience sounds a lot like mine. They sell-to-cover when my stocks vest quarterly, which pisses me off because the stock constantly goes up and I wish I could keep them until the time my tax bill is due. And, I have to manually report to the taxman all the money paid via those sell-to-covers, because even though eTrade sends me the transaction details each year, and they clearly tell the IRS how many stocks I got, they don't tell the IRS how much tax I already paid on it.
- scarface_74 1y ago
  When I worked for the company named after a rain forest, we had the choice of sell to cover, sell all or pay taxes without selling shares. I always chose to sell all. I would never have taken 25%-30% of my hypothetical cash compensation and bought one stock. Why would I keep my RSUs? Now I work at a smaller company doing the same thing (cloud consulting) making the same amount all cash. I much prefer that over cash + RSUs.

lopkeny12ko 1y ago

> Please just add it up and send me the bill. I don't want to pay more than what's due. And I don't want to cheat. I have a hard time understanding this comment because this is exactly what employers do when paying out RSUs. At the end of the year, you get a 1099 indicating the fair market value of shares you've received. There's no trickery here--this is literally the amount you owe income tax on. I'm not sure what tax software you're using that requires you to guess inputs and numbers. TurboTax makes this trivially straightforward.