Remembering TCPaul, 2016-2019

So, I have this friend/sometimes client who is freaking out

He sold a bunch of stock options last year and his company u wutwutwut03/04/19
it isn't the corp's job to withhold, it is your friend's job nycatt05/01/19
"it isn't the corp's job to withhold, it is your friend's jo wutwutwut05/01/19
Dang, you put the smack down on me!! That is interesting. T nycatt05/03/19
I think we may be thinking about two different flavors of op wutwutwut05/03/19
AHHHHH. yeah, I am talking about ISOs (incentive stock opti nycatt05/06/19
I'm not a tax guy, but "no" surely has to be the correct ans jeffm03/04/19
You mean he exercised the option and sold the stock? Or was guyingorillasuit03/04/19
Nothing convoluted, just exercised & sold so the gain betwee wutwutwut03/05/19
The loss is indeed on your client. He needs to consult a CPA guyingorillasuit03/05/19
No doubt somewhere in his contract, the company handbook, th therewillbeblood03/05/19
The L is on your client. Doesn't matter that the company und isthisit03/05/19
This fuckyouracists05/01/19
Solid lolz from this one. I am guessing he spend the money o triplesix03/06/19
that trump tax hike got him. not his fault he owes money he shouldalearnedmath04/30/19
Happened to a friend of mine. He had to pay. No recourse aga midlaw05/03/19
wutwutwut (Mar 4, 2019 - 10:34 pm)

He sold a bunch of stock options last year and his company under-withheld by a big margin.

I don't think it matters that his corp screwed up. He owes what he owes, right? There's no recourse against his corp for under-withholding, is thwre?

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nycatt (May 1, 2019 - 2:36 pm)

it isn't the corp's job to withhold, it is your friend's job. He screwed up. For reference, i know this because I exercised options for my wife at various valuations of her company (from practically worthless (she was a VERY early employee, and near worthless valuations only last until Series A) to the teens to the lots of $$). we got hit pretty hard tax wise when the value got big. But that is the bet you take. When the company got purchased in an all cash deal, we only had to pay capital gains taxes for the shares we exercised. Ka Ching. But the options not exercised were treated as income, so they were taxed way more, and she made a ton of $$ that year, so it was a high rate. Not the worst problem in the world I guess...

If you leave a company, you have no choice but to exercise if you want to keep the shares, so that is a difficult choice. There are plenty of start ups where the tax bill was astronomical and the the company imploded. Didnt happen to me, thankfully, but it happens way more than the ridiculously awesome outcome that happened to my wife and I.

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wutwutwut (May 1, 2019 - 9:55 pm)

"it isn't the corp's job to withhold, it is your friend's job. He screwed up"


In your vast experience from a single example you state this as if it's fact under all circumstances.

You are wrong in this instance. His company and its vendor manage the entire process and the employees there have no ability, whatsoever, to input into the withholding process.

Their own guidelines state they withhold at minimum 25% and adjust upwards from there based on the employee's overall comps, including the gains from the option exercise.

They actually did so for one, smaller tranche of options, but failed to do so for the other, larger tranche of options which was taxed at an average of 20%, for some unknown reason.


But in any event, the larger point is that he clearly owed the money, so he cut a $122K check to the Infernal Revenue Service on April 15th.

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nycatt (May 3, 2019 - 12:42 pm)

Dang, you put the smack down on me!! That is interesting. True I am not an expert, but in figuring out this issue for my own taxes for low, medium and high valuations over a seven year period, I have read IRS publications and lots of message boards on the subject and I do think that it is generally true that if you exercise options, you have an obligation to pay the tax bill that results at the end of the year, and nothing is withheld (obviously with some exceptions, like your friend). Your buddy had a 122k tax bill. If he filed that in July, and the co. withheld, he would have got probably zero salary at all for the rest of the year. In any event, an interesting data point for sure. thank you. In generally, the process sucks. Every company should give everyone holding options a documents containing an estimate for the lowest possible taxes at the start of each year (and amend when the valuation changes) so people know what they are getting into. The thing that really miffed be about this is that we never got the new valuation before we exercised, so it was a real Russian roulette, and the hammer didnt come down until we got our tax docs from the company in January.

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wutwutwut (May 3, 2019 - 5:36 pm)

I think we may be thinking about two different flavors of options and this may be causing confusion.

In this case, the options were exercised for their value on the open market and the shares are immediately sold, and the employee's gain/sh was the difference between the price set on the original option and the average price at which the tranche is sold on the public market. Because the option price is frozen once set and the shares are on the public market, everything is transparent through the end. From what I've read online (prompted by this conversation), most public corps handing out candy such as stock options do have their Hewitt, UBS, Fidelity, etc., whoever their benefits vendor is, do tax withholding on the gains.

So in any event there is no guesswork involved, not as there appears to be with the type of options you mention for a private company. I gather that for what you dealt with, the option price was probably frozen, but what was the murky unknown was the value of the company's shares right up until the company sold. No way to forecast that.

Edit: also on rereading your post I recall hearing about people, especially in SV startups in the mid-2000s, who got assessed monstrous amounts of "income" on what were worthless options.

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nycatt (May 6, 2019 - 1:20 pm)

AHHHHH. yeah, I am talking about ISOs (incentive stock options) that are handed out in smaller companies as incentives to come to a small start up. The things that made early Google, Facebook, Apple, Microsoft, etc. employees very wealthy. And that made employees of Pets.com, Theranos, and thousands of other companies loses hundreds of thousands of dollars when their options became worthless. You are talking about the stocks that current Google, Facebook, Apple, Microsoft, etc. employees get as part of their salary. I have a buddy at google that gets them - they seem pretty awesome. No idea about the taxes on those.

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jeffm (Mar 4, 2019 - 10:59 pm)

I'm not a tax guy, but "no" surely has to be the correct answer. What would be the measure of damages? He had the use of money it should not have had. Now, he has to give it up.

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guyingorillasuit (Mar 4, 2019 - 11:14 pm)

You mean he exercised the option and sold the stock? Or was there some convoluted transaction on the private market? Did he take an 83(b) election?

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wutwutwut (Mar 5, 2019 - 7:25 am)

Nothing convoluted, just exercised & sold so the gain between option price and market is ordinary income tax rate.

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guyingorillasuit (Mar 5, 2019 - 7:53 pm)

The loss is indeed on your client. He needs to consult a CPA. I assume you are talking about an NSO, so there could be capital gains in addition to ordinary income tax, as I understand it. I may be wrong.

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therewillbeblood (Mar 5, 2019 - 10:37 am)

No doubt somewhere in his contract, the company handbook, the options paperwork, etc. is a line that the company doesn't take responsibility for proper withholding and it's his responsibility to figure it out.

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isthisit (Mar 5, 2019 - 3:11 pm)

The L is on your client. Doesn't matter that the company under withheld.

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fuckyouracists (May 1, 2019 - 8:33 am)

This

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triplesix (Mar 6, 2019 - 4:04 pm)

Solid lolz from this one. I am guessing he spend the money on da boat too haha

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shouldalearnedmath (Apr 30, 2019 - 10:28 pm)

that trump tax hike got him. not his fault he owes money he spent already!

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midlaw (May 3, 2019 - 8:09 pm)

Happened to a friend of mine. He had to pay. No recourse against the company.

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