3 ms·
"That $375k would then be subject to 63% taxes, netting me $138,750, or a 20% down-payment on my piece of the american dream. The other company does the right t
by twakefield 14y ago
"That $375k would then be subject to 63% taxes, netting me $138,750, or a 20% down-payment on my piece of the american dream. The other company does the right thing, so I only see a 15% capital gains tax"
A bit of an aside but could someone elaborate on this? Is the OP referring to an 83(b) election? If so, isn't that his responsibility (of course, the company should advise him to do this). Or is this referring to something else?
At any rate, my impression is that there would be California taxes as well on that income, bringing the taxes well above 15%.
- johnnygoods 14y agoI think he is referring to the company letting him purchase his options as they vest, so that the eventual sale of the stock will be of a long-term capital asset, rather than short term and subject to his marginal tax rate.
- james_alonso 14y agoHe's talking about early-exercise stock options vs instalment exercise stock options. Early-exercise let's you exercise the shares from day 1, before they're vested. It starts the clock running on long-term capital gains treatment, so you're more likely to qualify for that lower rate than if you exercise later. You do have to pay for the shares out of pocket though so it's a risky move - could end up having paid cash for worthless shares, especially in an early stage company.
- oijaf888 14y agoYeah I didn't understand that either, unless as the other commenter mentioned they allow you to do a cashless exercise as you vest, however you are still possibly subject to AMT. AFAIK all ISOs are possibly subject to AMT whereas if you convert it to a NSO its just regular income.
- vellum 14y agoYup, California treats capital gains as regular income, so he gets hit with an additional 13.3%.