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Principles of Finance: Unit 6, Taxes 7 Views


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Description:

Taxes from a stock option perspective…à la Shmoop.

Language:
English Language

Transcript

00:00

principles of finance a la shmoop taxes okay yeah yeah so the subject of

00:07

taxes is complex and we're gonna look at it perhaps overly simply and only from [tax form]

00:12

the perspective of a single person filing a pretty simple tax return and

00:16

not doing anything fancy like moving to Rwanda or you know Florida before taxes [map of Rwanda and Florida]

00:20

are do we do here that these sunsets are lovely there taxes in the US as they

00:25

relate to income come in two flavors federal and state and yes some cities

00:29

have taxes hello Manhattan but we said we're gonna be simple here the federal [skyscrapers]

00:33

tax laws apply to everyone who is a US citizen so they're relatively easy to

00:38

detail here state taxes vary from state to state and individual states have

00:43

vastly different attitudes about taxing income well Florida Texas Washington

00:48

State Wyoming and a few others have no state income taxes California on the [map of the US with highlighted states]

00:53

other hand has the highest state taxes topping out at 13.3% for each dollar

00:58

above a million bucks and starting to tax investment income from the first

01:01

dollar Plus in many cases when companies do go public employees can and will sell

01:07

more than a million bucks in stock so they're often hit at this 13.3% level

01:11

for even very junior employees and the accent of something to cry about until [child having a tantrum]

01:16

you go to buy a crappy four bedroom home in Palo Alto that cost five million [large price tag on crappy home]

01:19

dollars for most things tax related well there's little you can do about it other [Uncle Sam catches man in butterfly net]

01:23

than pay but when it comes to young companies destined to someday go public

01:28

or get sold for a big price there's one key decision that employees can make [employees partying]

01:33

which can be a huge help to the tax hit they'll otherwise take specifically they

01:37

can buy out their options alright let's make up another little story here and

01:42

put you in the center you loyal employee of know whatever dot-com have a hundred

01:48

thousand options with a dollar strike price your company is just being sold

01:52

for twenty dollars a share and you are fully vested into all four years worth

01:56

of options 25,000 a year 100,000 options yeah you own them you haven't bought out

02:01

any of these options so you have a gain of 19 dollars a share it's 20 minus the

02:06

dollar strike price at times a hundred thousand units for a total monetary gain

02:09

pre-tax of 1.9 million dollars awesome wait until you see your tax bill

02:16

especially in California yeah cuz after taxes in California well you netted [guy gets knocked out by tax rate]

02:20

about a million dollars not at all a bad pay day at the office

02:24

but still pretty painful how could you have made that bill less painful like

02:28

you paid $900,000 in taxes you could have bought out your stock options along

02:33

the way we'll have us that work well watch our video on qualified versus non [Shmoop website]

02:38

qualified stock options and you'll get the magic answer but you could have

02:41

spent a little money bottomed out on the shares and then sold to get long-term

02:45

gain treatment instead of short-term gains and saved a boatload

02:49

like God seriously the amount you save would buy a boat alright so go watch

02:53

that video now it's got a 97 percent on Rotten Tomatoes like what do you want

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