No. That was one of the proposed changes in the tax law that was very unpopular. Itâs hard to charge taxes on something that isnât liquid. Whoâd be able to work for a startup? You vest $1M of stock you canât sell. How do you pay the taxes?
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. Itâs better to IPO in the 1st half, so lock expiration can happen in the same year to mitigate this risk
Maybe others are able to postpone, but the Dropbox employee I know wasnât given that option to my knowledge. He is having to pay taxes in 2017 on stock he canât sell on the open market.
Then I would recommend myo avoid. Sorry, but whatâs the point of being awarded 4 years of RSUâs and then have the value drop in half after you start working there?
Iâm not sure what to call itâI 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.
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.
InterestingâI had assumed that the company âboughtâ the stock and paid the taxes for them. I donât know whether the company offers those reabsorbed shares to investors to get the money. Been curious about that.
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 downerâŚliterally.
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.
Unless you work at a large private company, I donât think itâs normal for companies to approve their shares being traded on secondary markets. It completely skews the valuation and Iâd think they donât want random people owning a piece of the company and become easy takeover targets before they actually go public.