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I was an early employee at a startup that is going to be acquired. The acquiring company is a public one... will I be given shares in the public company? From what I can tell, my options are worth approximately $400k.
 How will I be taxed on all this? What's my best bet for minimizing these taxes? I've the stock options for a little over a year if that matters.

EDIT: I am fully vested.

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OP - One of the other methods I have used is to donate appreciated stock. You get to deduct the full value of the apprec... (more)

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I can not believe what I'm reading .

I went through something very similar a few years ago... my employer spun out my division into a separate public company, and then two years later, they were bought out by VC. The separate public company went public eventually, and just was acquired by another public company.

I had a bunch of options when my first employer spun out. The options I had then were replaced by the separate public company.

When the company was bought by VCs, I had a huge payout, and there was nothing to be done about it. I sold one stock I had a huge paper loss in to offset a pittance of the gain.

When the company merged... the stock was replaced. but, because the headquarters of the acquiring company was overseas, the IRS treated it as if we sold the old stock and bought new stock... at a big and unexpected capital gain. So in this case I had to pay
taxes but didn't get any cash from the transaction to help.

I also had some unvested RSUs in the acquired company. Those RSUs were replaced, with no tax ramifications.

How is the acquisition structured? My guess is there will be no tax ramifications because I'm guessing they will replace the options with options in their company. However, that really depends on the acquiring company. Do they offer options to their employees... and employees of similar responsibility to you? Maybe they'll want to pay the cash now and not worry about later (taxable), or maybe they'll want to conserve cash now (not taxable).

You'll need to dig into the acquisition documents (S-1?) to be sure.

If the shares are just issued to you automatically, you have very few choices - most likely the deductions for those will come automatically as they're given to you. However, there are two tax events here - (a) shares issued to you and (b) you sellig those shares at (hopefully) some appreciation. Uncless you've already exercised your options under Roth IRA, the train has left the station on (a). On (b) you can move to a 0% income tax state to be liable only for long-term capital gains or just avoid LTCG altogether and borrow against shares without actually selling them (check out InteractiveBrokers margin rates) if you have good faith in acquirer or some more shares coming your way.

Basically you get screwed.

Welcome to America.

Chargum85 said:   Basically you get screwed.

Welcome to America.

Op gets a windfall of 400k , if that's get screwed , sign me up every day

congrats on working for netsuite

Move to a state with no income tax.

camiolo said:   Move to a state with no income tax.
  strange, why didn't OP do this in the first place ...

rufflesinc said:   Chargum85 said:   Basically you get screwed.

Welcome to America.

Op gets a windfall of 400k , if that's get screwed , sign me up every day


Op gets windfall of $200k after taxes.

jd2010 said:   congrats on working for netsuite
  
Yeah, enjoy working for Oracle.  

Chargum85 said:   
rufflesinc said:   
Chargum85 said:   Basically you get screwed.

Welcome to America.

Op gets a windfall of 400k , if that's get screwed , sign me up every day


Op gets windfall of $200k after taxes.

  I'll take that any day and twice on sundays

More likely Quip -> Saleforce than Netsuite -> Oracle...I think few would consider Netsuite a startup still given its been public for the better part of a decade.

edit: re OP - at this point, its already too late to figure out what you can meaningfully do about your taxes.  You could have minimized your current tax burden if you'd taken certain steps at grant time, or really any time prior to the announcement of the transaction.

The company trusts me enough to allow me to work remotely. I go to the physical location about once a month. If I moved to Nevada, this should theoretically allow me to keep more of the money, correct?

The company is located in another state which is known for having high taxes. If I were to physically reside and work from Nevada, would I still have to pay state income taxes on my work and the stock gains? The cost of living would sure be a lot lower.

I don't work for Netsuite, but I don't want to answer any more questions about my employer.

gavinbelson23 said:   The company trusts me enough to allow me to work remotely. I go to the physical location about once a month. If I moved to Nevada, this should theoretically allow me to keep more of the money, correct?

The company is located in another state which is known for having high taxes. If I were to physically reside and work from Nevada, would I still have to pay state income taxes on my work and the stock gains? The cost of living would sure be a lot lower.

  Just say you're in California!  Geez you want advice but don't want to give details.

Well, there are a number of ways that it can be treated, depending both on what kind of options you have, what the plan documents say, and how the acquiring transaction is being structured.  As well as whether or not you can make an 83b election.

It's fairly complex question based upon all of the variables (and thus, probably worth it to find a tax adviser with this sort of experience and have a meeting with them, after having a copy of your stock option plan and hopefully some information from HR as to how the sale is affecting employee options), but if you want to research it yourself, I would suggest checking out http://fairmark.com/compensation-stock-options/

Dealing with potentially hundreds of thousands of dollars in taxes and a fairly complex situation, you should seek the advice of a tax professional.

I highly doubt this person works at quip, hasn't even been around 4 years to said person to be fully vested

Unfortunately the government no longer permits income averaging to make a saner tax rate out of such windfalls.

If you are paying taxes in CA then the chances you can get "free" of CA taxes in time are fairly low.

If you work remote from NV and that is where your company "pays" you then great. But moving and getting CA's claws out of your wallet (assuming that is where you are) is not an easy thing at all. Particularly if you have an empty physical "office" in CA.

If they are ISO options and you've held the options for at least a year (which you said you had), and then you hold on to the stock you get for at least a year, you will be eligible for long term capital gains rates. Otherwise, you will be paying short term capital gains rates.

Whether you get stock, options or cash (or some combo) for your options depends on the terms of the acquisition and we can't tell you without knowing the terms.

my guess is jet.com , got bought by WalMart for 3 billion in cash. Announced today.

gavinbelson23 said:   The company trusts me enough to allow me to work remotely. I go to the physical location about once a month. If I moved to Nevada, this should theoretically allow me to keep more of the money, correct?

The company is located in another state which is known for having high taxes. If I were to physically reside and work from Nevada, would I still have to pay state income taxes on my work and the stock gains? The cost of living would sure be a lot lower.

  
Must be jet.com. Good for you! 

how could this be jet.com? OP says fully vested, Jet hasn't been around for 4 years.

OP has said they don't want to talk about what company it is, so not sure why everyone keeps speculating. That said, acquisitions can bring acceleration of option vesting which could mean full vesting in less than 4 years.

RichieZZZ said:   how could this be jet.com? OP says fully vested, Jet hasn't been around for 4 years.
  
Where do op say 4 years? 
What part of fully vested = I have owned this stock for 4 years?

panmet69 said:   
RichieZZZ said:   how could this be jet.com? OP says fully vested, Jet hasn't been around for 4 years.
  
Where do op say 4 years? 
What part of fully vested = I have owned this stock for 4 years?

  That is the most common vesting period for startup options. Fully vested doesn't mean you own the stock, just that you have the ability to buy it all if you want.

panmet69 said:   my guess is jet.com , got bought by WalMart for 3 billion in cash. Announced today.
  Marc Lore robbed someone else of a massive amount of money.

OP - One of the other methods I have used is to donate appreciated stock. You get to deduct the full value of the appreciated stock and don't pay the capital gains tax.

You won't fool us again, JCARTER!



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