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Re:Ask HN: Planning to leave. How best to handle stock options? by stockaway on Wednesday December 09, 2015 @12:05PM (#10704951)
I approached ESOfund in the past, and did not ultimately use them, but not by any fault of theirs. They were very professional, helpful, and knowledgeable about my options and provided very good information about my available choices, even ones that wouldn't benefit them (I did extensive independent research on the decisions available and on their suggestions).

I believe their mission statement is to take the risk for you, which includes AMT if necessary, in exchange for some percentage of your stock to be negotiated. There's no risk in reaching out.

As far as AMT, I believe (off-hand) it's 18% of all income if it would be greater than your existing tax burden. So if you make $100,000 and are currently taxed 30%, your current tax is $30,000. If you exercise stock (where the gain is difference between your equity plan and the value as of the latest 409A, multiplied by the number of options exercised), that counts against AMT.

In this case, $18,000 would be your normal income against AMT, and you could gain another $12,000 in AMT without paying any more. This means gaining approximately $66,000 in value from the exercise without paying additional taxes. You would pay 18% on the rest of the value gain. For another $1,000,000, you'd pay on the order of $180,000.

Note: talk to someone who does this professionally, perhaps a tax attorney, as my word is from memory based on my research from a while ago.

If you believe in your company, or at least believe the stock will be liquid, I absolutely recommend finding a way to exercise your stock. All the better if you don't take a tax burden.

I also found out there's some kind of tax thing where you can preemptively exercise options (at grant time?) which won't be taxed as a gain because the value hasn't changed, then you just get the options as they vest (though it's a little late for that now :P)

Re:Ask HN: Planning to leave. How best to handle stock options? by ryan-c on Wednesday December 09, 2015 @12:54PM (#10705338)
Federal AMT is 26-28% plus 7% for California AMT.
Re:Ask HN: Planning to leave. How best to handle stock options? by 1024core on Wednesday December 09, 2015 @12:57PM (#10705364)
In such a situation: would it make sense to move to, say, NV and establish residence there before cashing out? At least you save the 7% CA AMT.
Re:Ask HN: Planning to leave. How best to handle stock options? by hueving on Wednesday December 09, 2015 @01:07PM (#10705477)
Won't work. California IRS hires bloodhounds to sniff this stuff out.

If you were employed in California when you were granted the options, you are going to pay CA taxes on them during exercise.

Re:Ask HN: Planning to leave. How best to handle stock options? by x0x0 on Wednesday December 09, 2015 @03:29PM (#10706493)
I'm pretty sure that's not true.

It is true that you can't just rent an apartment in seattle, call it a day, and pay no income tax. CA will look closely at things like owning in CA, where bank accounts are, how many days you spend where (keep airline receipts), where you're registered to vote, where your kids/spouse live and attend school, etc. But it is possible to establish residency in a state tax haven and avoid that 12.3% CA income tax.

As always, if the amount of money is material, see a tax attorney.

Re:Ask HN: Planning to leave. How best to handle stock options? by hueving on Wednesday December 09, 2015 @10:41PM (#10708730)
No, when it comes to options, it's where you were a resident when they were given to you.
Re:Ask HN: Planning to leave. How best to handle stock options? by x0x0 on Thursday December 10, 2015 @12:50AM (#10709095)
Oh, apparently for NSOs. That is not true for ISOs, which the vast majority of startup employees will be granted. see Publication 1004 from the CA Franchise Tax Board, discussing ISOs [1]

   Nonresident of California on Date of Stock Sale
   Qualifying Disposition
   If you exercise an incentive stock option while a California resident or a 
   nonresident and later sell the stock in a qualifying disposition while a 
   nonresident, the income is characterized as income from the sale or 
   disposition of intangible personal property having a source in your state of 
   residence at the time you sold the stock. Accordingly, you are not subject 
   to income tax by California even though the services that gave rise to the 
   grant may have been performed in this state. [pg 10]

[1] www.ftb.ca.gov/forms/misc/1004.pdf
Re:Ask HN: Planning to leave. How best to handle stock options? by hueving on Thursday December 10, 2015 @12:02PM (#10711692)
This covers the stock sale, but what about the liability of taxes from the exercise (diff between strike price and current value)?
Re:Ask HN: Planning to leave. How best to handle stock options? by x0x0 on Thursday December 10, 2015 @02:10PM (#10712640)
For ISOs, you're only subject to AMT on the spread between fmv and strike price at exercise. However, since there is (I think by law?) a 90-day exercise window after leaving employment, there's only 2 circumstances: (1) exercise while employed, and (2) exercise w/in 90 days after leaving employment. In both cases you're almost certain to be a resident of the state in which you were employed. Nothing I know of would require you to pay AMT to the state in which you were granted the options you exercised, but because it's unlikely for you to be a resident of a different state, it's a less interesting question.

Also, if your company takes off like a rocket, it's very much in your interest to not procrastinate on exercising vested options, because you want to minimize the AMT-taxed spread between FMV and strike. That increases the likelihood you're a resident of the state in which you were employed when you exercise.

Re:Ask HN: Planning to leave. How best to handle stock options? by ryan-c on Wednesday December 09, 2015 @01:07PM (#10705482)
You may be able to move to avoid the tax, but FTB will scrutinize it. If it appears to be a temporary move just to avoid taxes they will try to collect.

https://www.ftb.ca.gov/individuals/fileRtn/Nonresidents_Part...

http://www.forbes.com/sites/robertwood/2012/11/08/leaving-ca...

http://money.cnn.com/2013/06/18/pf/taxes/state-tax/

Re:Ask HN: Planning to leave. How best to handle stock options? by x0x0 on Wednesday December 09, 2015 @03:22PM (#10706431)
it's weird how early employees / founders who've moved on from successful startups develop a newfound love of Seattle, including many fb posts on how awesome their new home is, eh?
Re:Ask HN: Planning to leave. How best to handle stock options? by TheRealWatson on Wednesday December 09, 2015 @01:47PM (#10705812)
We criticize companies when they do this sort of thing. We should not feel differently, let alone suggest, an individual does that too.
Re:Ask HN: Planning to leave. How best to handle stock options? by mattzito on Wednesday December 09, 2015 @02:05PM (#10705930)
Isn't it a different situation, though? Often companies move legal jurisdiction to save money on taxes, while leaving their executives, warehouses, assets, etc. in their original locations. In this case you're depriving the original location of the tax base while still consuming the same services.

If you as an individual want to physically move yourself to another jurisdiction to avoid tax liability, that's a different matter. You're then consuming services in the state that has opted not to tax you as heavily, presumably at least partially to draw you and your money to that locale. You would also then live there and spend money, bringing benefits to the local economy.

Re:Ask HN: Planning to leave. How best to handle stock options? by js2 on Wednesday December 09, 2015 @12:15PM (#10705032)
some kind of tax thing where you can preemptively exercise options (at grant time?)

The 83(b) election?

Re:Ask HN: Planning to leave. How best to handle stock options? by cjbprime on Wednesday December 09, 2015 @12:33PM (#10705158)
83(b) elections are for restricted stock grants, not applicable to options.
Re:Ask HN: Planning to leave. How best to handle stock options? by not_that_noob on Wednesday December 09, 2015 @12:48PM (#10705284)
Some option agreements allow the early exercise of options, turning them into restricted stock. Because the value is usually low at seed stage, a good strategy is to exercise and then file 83(b) on the restricted stock. In this case, assuming you have this provision in your stock agreement, it avoids the mess of this exact scenario.
Re:Ask HN: Planning to leave. How best to handle stock options? by toast0 on Wednesday December 09, 2015 @12:53PM (#10705332)
83(b) is applicable to options, if the options grant allows for early exercise, and you do exercise early (before the options have vested).
Re:Ask HN: Planning to leave. How best to handle stock options? by stedalus on Wednesday December 09, 2015 @12:54PM (#10705340)
Or if the option grant has early exercise.