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Remember when Spez said it was "It's time we grow up and behave like an adult company"? Apparently, that means paying himself $193 million and single-handedly tanking Reddit's profitability right b... (www.npr.org)

submitted 9 months ago by [email protected] to c/[email protected]

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[–] [email protected] 2 points 9 months ago (1 children)

For the record it absolutely is taxed as such. As soon as it vests the IRS considers it income, whether they sell it for the cash or not.

Its a huge headache for startups sometimes. I had team members I wanted to compensate but just giving them the equity would have been an imediate big tax bill on a non-liquid, and speculative, asset. There's ways to massage it (like vesting) but he will absolutely have that taxed.

Oh, and I could be wrong but I think the share value is just taxed as ordinary income, not capital gains. Ie: if the award is denominated in $1 shares, which he sells for $1.10, the $0.10 gets capital gain rates (if he held it for a year) but the $1 is taxed just like a paycheck.

[–] [email protected] 1 points 9 months ago (1 children)

Its a huge headache for startups sometimes. I had team members I wanted to compensate but just giving them the equity would have been an imediate big tax bill on a non-liquid, and speculative, asset. There's ways to massage it (like vesting) but he will absolutely have that taxed.

Is there an equivalent of the sell-to-cover withholding strategy for stocks that aren’t publicly tradable?

[–] [email protected] 1 points 9 months ago

I don't see why you couldnt, but you'd need a buyer. Like if you had a funding round you might include in part of your use of proceeds a small buyback/ sell to cover like you're talking about. If the company was doing the sell to coverthats definitely easier cash wise than a bonus but not 0.

All these rules make total sense, they're just hard for really early companies. The lawyer calls alone on this stuff start to add up in a hurry and if you skip them you may have just screwed the people you want to help and muddied things for any future raise.