Options do get pretty nasty if you exercise and hold, when the fair market value is higher than the fair market value; because then you have to have an AMT return and a regular return and reconcile them.
ESPP with a discount was pretty bad the last time I had it; the brokerage said they were specifically required by IRS rules to report the wrong cost basis, and you had to adjust it when you sold, or you'd have the discount reported on your w-2 and again as a capital gain. Maybe that changed, capital gains reporting has changed over time.
1. My RSUs vest monthly. I've been selling immediately. For the last ~2 years, I guess I've been unlucky, and the sales have generally been small losses. Each of those sales gets washed by a vest that occurred either a month before or a month after. I used to track these by hand in a spreadsheet. It become essentially impossible due to increasing complexity every year caused by the long chains of vest+sale. Now I wrote a 1000+ line Python program to calculate my wash sales. It probably took 20+ hours to write. It takes about 30s to run, that's how large the vest+sale graph is (and the program isn't optimized for runtime). A single sale is now being washed by chains of vest+sale that are extremely long. And due to each vest involving different amounts of fractional shares due to changing compensation and changing tax rates, the washes are constantly doing partial washes, that split lots into sublots. So a single sale might involve many many sublots. The holding period is also propagated to the new lot. The chains are starting to get so long, that if this were to continue a few more years, I would have some sales that are partially long term (>= 1 year) and partially short term, which I can't find any information online about how to file. It takes me hours to format my data from my 1099B and statements into a CSV to put into the program, and hours more to take the output CSV and put it into Turbotax. Quarterly vests would partially solve this problem (you would still get washes caused by multiple vests happening on the say day sold for a loss washing each other, but at least it wouldn't propagate to future or past vests).
I have now resolved to never sell for a loss (where loss is defined as for any sublot within the lot, the sale price is lower than the original basis + the basis added by all the previous sells washed by this sublot's vest), to avoid this problem. This may mean I have to hold on to stocks that I want to sell, potentially until I die.
2a. I live in CA, but worked from MI a few days a few years back. That means I now have to pay MI tax for 4 years. I receive ~48 vests per year (monthly vests of 4 different grants (from the 4 prior years)). For each of those ~48 vests, I need to calculate what percent of the days between grant and vest I worked in MI, and pay that amount of MI tax on that vest. Turbotax has some bugs related to MI taxes and 401ks and IRAs. Even though my 401ks and IRAs have nothing to do with MI, I now have to deal with these Turbotax bugs every year because I have to file MI taxes.
2b. If you need to file NY taxes as a non-resident (like I have to do for MI), it's even worse, because not only do you need to do that calculation for each vest (~48/year in my case), but you also need to file a new IT-203-F form for each vest. That's 48 IT-203-Fs to file each year. And each one is a complex form involving workdays, weekdays, holiday days, sick days, vacation days, etc.
3. If you move between states with different tax rates, your vests are taxed completely at the new state's tax rate. They're also taxed proportionally (based on time between grant and vest) at your old state's tax rate. So they're double taxed. You do end up with a tax credit that undoes the smaller of the taxes. But this means that when you move, for 4 years you're taxed at the maximum tax rate of the 2 states (on at least some portion of the vests). This makes WA->CA movers mad, because all they have to pay CA tax on 100% of their vests immediately. It also makes CA->WA movers mad, because they have to pay CA tax for 4 years on some portion of their vests.
I dearly wish to be paid in cash.
The only downside of all cash compensation is it attracts mercenaries. Personally I find believers and missionaries more pleasant to work with.
* All else being equal, such as the payout schedule.
Selling my “equity” in a private company once it vested wouldn’t have been an option.
Note for those who don’t know: Amazon has a 5/15/40/40 vesting schedule with their first four year offer. The first two years you get a large pro rated cash signing bonus to make up for the back heavy vesting.
> Wall Street pays cash.
RSUs aren't quite that deal, because they're "invested" before they vest. Even assuming that the employer would be equally willing to give you either $X/yr in cash or $4X in RSUs over the next 4 years, you can definitely come out ahead if the stock keeps going up. It's effectively a form of leverage through time arbitrage; you get to buy $4X worth of stock at today's prices using money you don't have yet.
Consider a simplified scenario where the stock is flat forever, except that it doubles in a single day when you've been there for a year. If you take the $X in cash and immediately buy your employer's stock with all of it, you only double your money on that first year's paycheck. By the end of the 4 years, you would have $5X (the $4X you earned in salary/bonus, plus one extra X from the doubling). On the other hand, if you take the RSUs, that entire grant, including what hasn't vested yet, benefits from the increase. In this scenario, by the end of the 4 years, you have $8X.
Similar happens with any scenario where the price is monotonically-increasing, but with more arithmetic. If you assume that the stock will go up over time, and that you wouldn't want to be trying to time the market, this starts to look like a pretty good bet. Compound that with the fact that most employers will be willing to offer a much higher number in RSUs than in cash - that is, if they would offer $X in cash bonuses, they'll offer >>$4X over 4 years in RSUs, especially as a starting/signing-bonus offer - for reasons having to do with financial accounting, and it's suddenly a very attractive deal.
The main reason to prefer cash over RSUs is for diversification. But if we're talking about a public company, you can still sell the RSUs as soon as they vest in order to diversify (and the standard advice is to do so). You really only stand to lose if your employer's stock goes down between grant and vest - not just worse than market, but actually down - which, on average, is an easy bet to take. Getting RSUs at a private company is a much dicier prospect, of course, because now you're locked into that lack of diversification in a way that really matters; even after the point where you get the paycheck, you don't get to bail out if the ship starts to sink.
In terms of the amount of tax to MI, it's not a whole lot. A couple hundred dollars. And it doesn't change my total taxes paid, because I get a tax credit for that against my CA taxes. MI's tax rate is lower than CA's.
It's been a while since I used autosale, but I think the problem still existed then, because I think even with autosale the sale price wasn't identical to the vest price, so there were still loss sales, which could be washed. But I think since the sale happened the same day as the vest, the problem wasn't as bad, because in 31-day months, the loss sale couldn't be washed by the next month vest. So there wasn't the case of constantly increasing complexity, because the complexity would reset in 31-day months.
I tried ETP back when it was introduced. I didn't like it. It's been a while, so my memory of why I didn't like it is a little foggy. For one thing, when you're enrolled, you're not allowed to buy or sell any Google shares manually. One of the biggest problems was that there's a cooling off period, and the shares that vest during that period don't get autosold right away, and you can't sell them manually. I think they get autosold a month or so after vesting. My memory might be wrong, but I think that's what happened. Another thing that annoyed me is that my sells got split across 2 1099-Bs: the 1099-B from my individual Schwab account and the 1099-B from my EAC Schwab account. I think shares that vested during the cooling off period went on one 1099-B and the shares that vested during other times went on the other 1099-B. And somehow in the confusion I ended up with some shares that never got sold at all.
I think it'd be good to visit with a CPA to cover some of these topics. I'm not saying definitely hire one but I think you may have misunderstandings of the tax codes.
The IRS defines a wash sale with
> A wash sale occurs when you sell or trade stock or securities at a loss and within 30 days before or after the sale you:
> Buy substantially identical stock or securities,
> Acquire substantially identical stock or securities in a fully taxable trade,
> Acquire a contract or option to buy substantially identical stock or securities, or
> Acquire substantially identical stock for your individual retirement arrangement (IRA) or Roth IRA.
Is vesting RSUs acquiring shares in a fully taxable trade or buying stock? I don't know and never considered it, but the statute of limitations has run on my RSU days. I also didn't have monthly vests.
> Your other two points - states don't do income tax calculations based on the grant, but only what vested while you lived/worked in the state in the respective year of the vesting. Basically you don't owe Michigan income tax for a given tax year if you didn't live or work in Michigan during that tax year.
I don't know about Michigan, but California's Franchise Tax Board asserts that it is owed tax in tax years where RSUs vest if you lived or worked in California during the vesting period; even if you don't live or work in California during that particular tax year. After I moved to WA, I continued to pay CA income tax, as I had partially vested RSUs. I've heard some companies will cancel and reissue RSUs when you move states, but this wasn't offered for me. FTB is kind enough to say you can use any reasonable method to allocate RSUs and they never asked me to show my work, so I must have done fine?
Even if I acquire new shares < 30 days later?
My employer (Google) had a CPA give a recorded presentation about how to file RSU taxes. In it he said that the vests can was your sales, and this is especially prevalent if you have monthly vesting. This was a CPA who specializes in helping Google employees file taxes.
> Your other two points - states don't do income tax calculations based on the grant, but only what vested while you lived/worked in the state in the respective year of the vesting.
See https://www.reddit.com/r/tax/comments/q8ythd/interstate_move... .
Also, that same CPA gave a different recorded presentation specifically about state-to-state RSU taxes, and he said that if you work from another state, you need to track the number of days between grant and vest that you work from that other state in order to properly attribute the earnings to non-resident states.
Sure. You also don’t get to turn them into cash the way shareholders can. Consider that it’s been VCs most vocally singing their praises.
They sell-to-cover when my stocks vest quarterly, which pisses me off because the stock constantly goes up and I wish I could keep them until the time my tax bill is due.
And, I have to manually report to the taxman all the money paid via those sell-to-covers, because even though eTrade sends me the transaction details each year, and they clearly tell the IRS how many stocks I got, they don't tell the IRS how much tax I already paid on it.
Now I work at a smaller company doing the same thing (cloud consulting) making the same amount all cash. I much prefer that over cash + RSUs.
I have a hard time understanding this comment because this is exactly what employers do when paying out RSUs.
At the end of the year, you get a 1099 indicating the fair market value of shares you've received. There's no trickery here--this is literally the amount you owe income tax on.
I'm not sure what tax software you're using that requires you to guess inputs and numbers. TurboTax makes this trivially straightforward.