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Comment by new299 | Hacker News Reader

Imagine you had the money today (you'd already, automatically sold all the stock). How much would you buy?

Once you've figured that out sell everything except the amount you would buy.

It's effectively the same decision, but framing it this way can be helpful. Say your stock is worth 100KUSD. If you had no stock and 100KUSD, would you really spend 100KUSD on the stock? 5K? 10K? That's how I have made these choices in the past.

Also, keep at least one share. The information you get by virtue of being a shareholder is often interesting.

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Imagine you had the money today (you'd already, automatically sold all the stock). How much would you buy?

Once you've figured that out sell everything except the amount you would buy.

This is the correct answer. When your publicly traded company pays you in stock, they're just giving you cash in an inconvenient form. If you wouldn't use this hypothetical cash to buy stock in your company, you should liquidate it all immediately.

Note that so long as you have unvested stock and intend to stay at your company, you essentially already are invested in your company. And since you said your unvested stock is worth 10x your salary, you'll probably have more exposure to the stock than you ideally want even if you do sell all your shares. So keeping some probably doesn't make much sense.

It’s almost the same. The biggest difference is the tax consequence of selling. If I have $100K of cash then I have no tax liability to enter any distribution of holdings. If I have $100K of shares of company X then liquidating it will incur a tax consequence of the full value (assuming I got them at a price of zero as a bonus).

Now that’s not justification for keeping it in company stock. If anything, you’re better off liquidating it and putting it in something else you’re not going to sell for a long while (say diversified ETFs). But it’s not apples to apples like having the cash to start.

In publicly traded companies the shares are taxed when they vest. So when they give you the 100k in stock, you are taxed on the 100k (usually they withhold a portion of the stock in vesting programs).

+1 you pay at the time the stock vests. When you sell you pay tax on any gains that occur after the stock vested. If you sell immediately there is no/little tax burden.

This is why you heard stories of people getting heavily underwater when the stock that had vested crashed. Not many of these stories recently, but the time will come again.

Not many people have vesting shares of publicly traded companies that are still startup volatility. Blame the IPO market on that.

So how does the IRS treat vesting shares of a company like Uber? I doubt people get to make their own determination of the vest value, but I don't really know how the price is determined exactly.

Vesting _options_ aren't taxed until you exercise them.

When you exercise them, the company's most recent valuation will include a value for the common stock you purchased, and you can get hit by AMT on the value increase from the strike price to the current value.

Note: I am not a tax expert and my memory is imperfect.

If you're worried about the price, either sell a portion to cover the taxes, or buy call options offering downside protection.

Nitpick - calls are for upside. Puts provide downside protection.

Sorry, you're right -- typo. Put is what I wanted to write. Long day!

You won't get underwater from a vested stock that crashed; the company bears the responsibility of selling enough shares at the time of vest to cover all the taxes- that said you can end up paying a huge sum in taxes and getting no cash from the deal if it crashes before you sell your half.

You can get in real trouble with options of non-public companies and with ESPP plans. Stock from an ESPP plan, if sold in the first 12 or 18 months of holding (depending on the plan details) will be reported as ordinary income at the time of purchase. If you sell during that 12-18 month period at a loss you will still owe taxes at the full price, and that can get you in a hole. I've heard of people owing 20k taxes on a 5k return because of a panic sell during a market downturn.

I'm just an engineer and not a tax professional, so there may be errors in what I've stated.

No, this is not why you heard such stories. If you use the commonly accepted definition of 'underwater' as applied to financial dealings which is that you owe more for something than it is worth, then....

... you will never go underwater from holding onto a vested stock grant. (This is the situation the OP was asking about.)

... you will never go underwater from holding onto a vested & exercised stock option if you paid taxes out of pocket.

... you may go underwater if you take on debt to finance the tax liability incurred when exercising stock options and the value of the retained stock subsequently drops below the unpaid portion of the debt you undertook to exercise it. (This is the scenario that led to the stories you refer to.)

Yes but if they give you RSUs, which is probably the case in a publicly traded company, then typically >1/3rd are sold by etrade or whoever to pay those taxes. IE you don't really have to deal with this.

Now you DO have to worry about the taxes on capital gains. I recently had to deal with this because I sold my RSUs on the day they vested, thought the 3rd that auto-sold covered me, but didn't realize the .88 cents that the stock rose in the hour before I sold the stock qualified as cap gains and I needed to deal with declaring it. Short term cap gains in this situation basically is just your standard tax rate.

If you don't need the money and you think the company's stock is going to do decently over the next year then holding on to your shares for a year to get to long term cap gains isn't necessarily a bad idea. Depends on the company.

In general: diversify as much as is prudent considering the taxes, your financial situation & your downside risk.

Consider long-term vs short term capital gains, but if the stock volatility is higher than the difference (and the difference is meaningful to your financial health) you may still want to sell at the higher tax rate.

If you are in high-interest (credit card, payday loan) style debt, you almost always want to sell and retire that debt; nothing can beat that.

Not sure if the same question ... but I worked for a company that recently went public. I can't sell for another 5 months. Currently my shares are worth over 300k. I am not sure how I decide what to do when my blackout ends.

$300k isn't a life changing amount obviously (in the lavish multi-millionaire sense), yet if you have debt it could pay off perhaps (hopefully?) all the debt you have and put a big down payment on a house depending on where you're at, etc.

Point being, that decision is very personal in nature, it depends on your circumstances. So you want to start there, with your personal circumstances. Then after that, it depends on what you think of the company prospects. If you think the company is going to be far more valuable in ten years, regardless of the present stock market bubble, then that should influence your choice. I would suggest avoiding trying to guess where the stock market bubble is going to go, who knows if it's going even higher yet or if it's just about to pop; and focus on things you can control and understand with certainty.

Finally, obviously you don't have to liquidate all of your holdings. If you have $50k in student loans, sell at least enough to wipe that out. Debt is one of the few things I overwhelmingly will always argue in favor of eliminating at the first opportunity. There are a lot of ways to earn $300,000. Debt can and often will make your life a living hell on the other hand.

Thank you

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