More like $87,751.75.
Ummmm. . . That seems to be incredibly rectaly derived.
I linked the source.
Also, if you set out to profit from digging things out of the ground and make a regular habit of it, selling the items is ordinary income (offset against expenses) as well as self-employment income, and so you pay ordinary income tax as well as self-employment tax on the profit.
Right but you called something that people would have to pay for salary. I don’t think you’re reading the thread.
I am saying it should be treated as salary. Because it is part of an employee’s compensation package.
I am saying $336k in stock options should be treated the same as $336k in cash.
That the tax code treats these differently I do not dispute.
I am saying therein lies the problem. They should be the same because they are the same.
No, in this case you’re just wrong. $336k in stock options means the right to give someone $366k. In no world or any tax code an amount you have to pay someone taxable. At best, the value you have received is the value of the right to pay someone $336k. Based on Amazon stock today that right it worth about $15k I used a 30% tax rate for easy math but why don’t you plug 15k into your calculator and see what the tax rate is.
As soon as those stock options are exercised tax should be paid on them.
I’d also suggest there is a value to the option on its own. Just as mentioned above. The Black - Scholes model can give a value to an option before it is exercised.
Bottom line the employee has received something of value that they do not have to pay taxes on.
And they are currently so you like the current system.
Yes, this is the $15k I’ve been using since I was reminded of the error in using 0.
At most they have received $15k in value that they aren’t taxed on. This isn’t a change in the tax code that is going to change compensation packages.
You’ll only be taxed on the value of the stock minus your purchase price. If the stock was $3/share and they let you buy it at $1/share you will pay on the $2/share. You still made 33% you are not taxed on here though.
And, of course, if you buy at or below the value then you pay nothing. That might seem nuts but if you were of the mind that the company value would increase you might do it.
Honestly this is far from the tax avoidance schemes of the very wealthy the the OP was on about. This is a way for companies to pump their stock price (which is mostly of advantage to those very wealthy people) and lower their costs of operating the company (lower salaries…give stock options instead).
But yeah…stock options let Joe Schmo do a little tax avoidance too. There is a reason Joe Schmo will accept this in lieu of a pay raise.
Remember, this is only giving someone else the right to exercise the options within a certain timeframe. And you make $15,000 either way. If the options become in-the-money then the other person pays you $15,000 PLUS the $336k initial value. They do that if the stock becomes worth more than $351k.
No. As I explained above this is an incorrect understanding of how they work. You as the employee are required to, out of your own pocket, contribute that dollar. Then when you sell the options you are only taxed on the profit you made. People some times sell shares and use the profits from that sale, after tax, to fund the purchasing of other shares from that options package. There is no amount you are not taxed on.
Ummm . . . Yes, it would be utterly insane to excerise an option when the open market price was below your strike price. If you weren’t too dumb to breath and thought the company value would increase you would just buy at market price for less money.
Yes, you get the right either way.
No, stock options are just the right to buy stock. You don’t get the 15,000 returned to you ever. No one pays you anything ever. At best you get to sell the stock you bought with the option and make a profit which is also taxed.
That is true mainly because there is no tax avoidance here.
$15,000 is the value of the option to buy that stock at a given price within a certain timeframe. The mere ability to buy the stock at a pegged value has value.
The point is, as an employee, you are being given something of value that you are not paying taxes on.
That is tax avoidance.
And for the Gates and Musk’s of the world they get SO much more out of this that their tax avoidance schemes blossom.
There is a reason companies do it this way. There is a reason these CEOs accept these schemes. There is a reason these people have become colossally wealthy in the past few decades.
This is much, much, much better for them than accepting a payroll check. If they got a payroll check for an equivalent amount they’d have paid FAR more in taxes. But they haven’t. That’s not by accident.
More than just CEOs accept stock options. These were instituted to more tie the compensation of employees to the appreciation that shareholders want. Basically, the holder of stock options does well when the shareholders do well. The problem is that since stocks mostly function as a random walk, in reality, stock options are rewarding increased volatility in the stock price.
How would you structure a payroll check that had anything to do with the success of a company or do you prefer CEOs to be compensate ld no matter how a company does? Again I agree about the removal of cap gains as a tax category but treating it as straight income doesn’t work either.
The good news is that as more people understand how CEOs are compensated the better we can have a good conversation around what tax policy should be.
I find it odd to think a CEO would do a bad job unless they were given stock options. Is that what they are contending? That without stock options they will just do a shitty job?
Seems to me they should be treated like any employee. If the Board thinks they are doing well they give them a pay raise. If they are doing a shit job they get fired. Same as you and me.
Of course, these days they all have golden parachutes which is just offensive but that is another discussion.
Of course not. But people do what they are incentive to do. For instance you might get an annual bonus on work if you sell enough widgets or generate enough tps reports. That is why we have metrics to help employees decide what is the most important part of their job. Unfortunately, as a stock owner I can’t cut the sales department’s pay by 20% if they don’t sell enough widgets but with stock options I can cut the CEO’s pay by a huge amount if he doesn’t raise the stock price. Would you prefer to be paid in the same style as a CEO?
Sure some people just want to know what they owe. You’d prefer the CEO of ExxonMobil to get a $8.5mm/year pay raise (700%) rather than tieing 86% of his compensation to how well he does his job. As a share holder I’d rather not pay him and then fire him if he does a poor job rather than pay him and then fire him.
This encourages short term pumping of the stock over long term health of the company.
I prefer the latter.
Again, probably a topic for another thread. (One I’d be interested in.)
I agree we’re drifting. If you start it I’ll join in through probably tomorrow.
Moderator Note
Yep, definitely.
As @Chronos already said upthread, how things work is GQ territory. Many of the latest posts are getting into how things should work, which is GD territory. As there still seems to be a lot of factual questions about the details of how some of these things work, I think at this point we’re still best off keeping this thread in GQ. Feel free to spin off a related thread in GD and link back to posts in this thread for reference.
Is it your claim that this can’t be done with cash? Because of course it can be done with cash.
My company is privately held, and the executives get an LTIP. There are no shares or options to be given, it’s just cash earnings based on the performance of the company over an extended term. Companies can put cash in escrow to be vested over time, based on stock performance, whatever they want. But that model requires paying income tax like a chump.
He could probably arrange the loan in such a way that the repayments would be a business expense which could be deducted from his taxable income