Dropbox IPO?

[harriet]

@BAGB

For pre-IPO RSU, do you need to pay tax?

No tax until liquidation event.

[hanera]

@harriet

No tax until liquidation event.

Ain’t tax is due upon vested, regardless of pre or post?

[marcus335]

@hanera

@harriet

No tax until liquidation event.

Ain’t tax is due upon vested, regardless of pre or post?

No. That was one of the proposed changes in the tax law that was very unpopular. It’s hard to charge taxes on something that isn’t liquid. Who’d be able to work for a startup? You vest $1M of stock you can’t sell. How do you pay the taxes?

[hanera]

Are those delayed tax due once IPO?

[harriet]

@hanera

Are those delayed tax due once IPO?

Yes. It will be calculated based on the IPO price and your strike price, regardless of whether you sell or not.

[BAGB]

Seems a reasonable solution. IPO price is usually reasonable and it usually hold above the IPO price upon lockup expiration.

But in case stock price drops much below IPO price, people may need to pay tax for gains they did not have. It’s better to IPO in the 1st half, so lock expiration can happen in the same year to mitigate this risk

[myo]

@Terri

PS: In all seriousness, given Roy’s and Marcus’s analysis, you should wait until a couple of months after they IPO. Once the stock drops, your offer would be based on that stock price. If you took an offer now, you risk losing half that value just after the IPO. If you take it after IPO, you stand a chance of doubling value if it goes back up, or at worst it staying the same.

Thanks for the tip, Terri. I wasn’t quite serious about jumping ship. But you have a good point.

[myo]

@BAGB

For options, you can wait to exercise until the day you sell

Unless you want to leave the company before IPO, you generally have 90 days to exercise it and require you to come up with $ to exercise.

[Terri]

@BAGB

For pre-IPO RSU, do you need to pay tax?

For options, you can wait to exercise until the day you sell

Yes. If you don’t have the cash to pay the taxes, the company takes 45% of your stock units and pays tax on your behalf.

[Terri]

Maybe others are able to postpone, but the Dropbox employee I know wasn’t given that option to my knowledge. He is having to pay taxes in 2017 on stock he can’t sell on the open market.

[Terri]

@hanera

@Terri

Once the stock drops, your offer would be based on that stock price. If you took an offer now, you risk losing half that value just after the IPO. If you take it after IPO, you stand a chance of doubling value if it goes back up, or at worst it staying the same.

That’s not how the game is played.
Just before IPO, startups would beef up their engineer ranks to show that they have tons of engineers working for them, in fact, they would try to recruit as many SWEs from Ivy and prestigious universities like Stanford. Also, try to add in a few top executives from big boys.
Once IPO, ahem, no need for them anymore… the offer would most likely lapse before IPO.

Then I would recommend myo avoid. Sorry, but what’s the point of being awarded 4 years of RSU’s and then have the value drop in half after you start working there?

[hanera]

@Terri

Sorry, but what’s the point of being awarded 4 years of RSU’s and then have the value drop in half after you start working there?

Long term. You’ve to believe the long term viability of the company or love the way the company conducts business and/or human resource practices.

[buyinghouse]

I dropped dropbox as a rock on the river. I had Photobucket for free, which I used for Ebay.

Since then, I’ve seen Dropbox everywhere, but not usable.

Icloud made Dropbox not desirable, but I am speaking from a consumer point of view.

[harriet]

@Terri

Maybe others are able to postpone, but the Dropbox employee I know wasn’t given that option to my knowledge. He is having to pay taxes in 2017 on stock he can’t sell on the open market.

That is for non-qualified stock options (NSO), not RSUs. RSUs don’t trigger tax in a pre-IPO situation.

[Terri]

@harriet

@Terri

Maybe others are able to postpone, but the Dropbox employee I know wasn’t given that option to my knowledge. He is having to pay taxes in 2017 on stock he can’t sell on the open market.

That is for non-qualified stock options (NSO), not RSUs. RSUs don’t trigger tax in a pre-IPO situation.

I’m not sure what to call it–I thought it was called RSUs. Regardless, for Dropbox, stock-based compensation is taxed. The schedule is a bit complicated. The date when it vests is not necessarily the date when you have to pay taxes on it because pre-IPO companies are allowed to push the grant into the next tax year. In 2016, the vesting stock was pushed to March/April(?) of 2017, then in 2017 the vesting stock was given/taxed monthly. In 2018 it will vest quarterly and be taxed as such.

[harriet]

I think your friend got taxed because Dropbox is so huge that there is a secondary market for selling the shares, hence the price is actually measurable by IRS. Places like EquityZen allow the exchange of these pre-IPO stock, but I believe this is only applicable to the larger private companies (i.e. Dropbox/Airbnb/Uber) since they need to find a way for employees to liquidate the shares. Otherwise in general RSUs are not taxable until the liquidation event i.e. IPO.

[Terri]

Interesting–I had assumed that the company “bought” the stock and paid the taxes for them. I don’t know whether the company offers those reabsorbed shares to investors to get the money. Been curious about that.

[Terri]

So for those companies that wait to assess taxes until IPO (which oh my goodness-imagine that tax bill), do they buy the stock back on the IPO date to pay taxes? Because having to wait 6 monhts to liquidate stock on the market to pay those taxes would be a real downer…literally.

[Terri]

@harriet

EquityZen

Anybody used EquityZen here? They say they ask for company approval–is that likely?

[harriet]

@Terri

So for those companies that wait to assess taxes until IPO (which oh my goodness-imagine that tax bill), do they buy the stock back on the IPO date to pay taxes? Because having to wait 6 monhts to liquidate stock on the market to pay those taxes would be a real downer…literally.

I think the company is not involved (other than maybe issue a filing to IRS saying so and so is subject to tax), so the employees will have to figure out how to pay for the tax on their own.

Anybody used EquityZen here? They say they ask for company approval–is that likely?

Unless you work at a large private company, I don’t think it’s normal for companies to approve their shares being traded on secondary markets. It completely skews the valuation and I’d think they don’t want random people owning a piece of the company and become easy takeover targets before they actually go public.