I always wondered how equity provided by startups is taxed. Equity vested is illiquid, are you supposed to pay taxes on paper money which you can't sell in open market? What happens if the equity value goes down after you pay taxes (as it happened with many start ups in 2022-23)? this makes me wonder one might not pay tax on equity until there is a liquidation event (IPO or sell in 2ndary market). Please enlighten me. Tc: 600k
Paid taxes when executed some stock options, which turned to dust. You realize a loss, and then you're allowed to be like trump and deduct the loss from future like income and pay zero taxes next year.
When can you execute your stock options? After IPO right?
No, in our case they sold to a private corp. I could execute anytime though, but did 2 months before the sale. We got some peanuts when shares were converted from the old corp to new, but the private equity vultures turned it to dust once they rolled over the clients.
Most startups provide options rather than RSUs, and there's no taxable event until you exercise the option. For the few that do provide RSU's, like Databricks, they're large enough that there are established secondary market options to sell them. The exception might be getting founder equity, but that is usually issued early enough on that the equity provided has a low enough FMV that the taxes paid on the issuance are negligible.
Is there secondary market for startup stock options?
If the startup is large enough there can be, smaller ones usually no. Also need to verify your offer paperwork if you join a startup, early enough stages you might have clauses that prohibit you from selling shares without board authorization.
One follow up question: normally when options from these startup are exercised, is cashless exercise allowed or you must hold the shares for a period of time. This can drastically change your tax situation
Tech Industry
7h
415
Tech market end of April 2024
AMA
Yesterday
3429
I have worked at TikTok US core tech for 3 years. AMA.
India
19h
3358
Why is it so G*damn difficult to move money out of India
Health & Wellness
17h
979
Issues with sleep
Ask Blinders
23h
1068
Why Pronouns shit captured US ? I don’t see this anywhere else
Double trigger