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Old 02-03-2015, 06:29 PM   #21
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Been there..no fun. When I retired I had a boat load of stock options I had to sell within 6 months. That was a real tax hit, the price of freedom? It was worth it
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Old 02-03-2015, 09:49 PM   #22
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It's more painful that where I work, there is 0% of such an event happening.

However, the pension could act like a semi-windfall if I can manage to stick around for 10-15 more years...
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Old 03-04-2015, 08:59 PM   #23
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Taxes were finalized today. It was a large (large to me) stock cash out. Glad it's over with and done. Been paying quarterly and now the monkey is off my back with the final 1099's in and completed. A grand total of $263k paid to the Fed. for 2014.

Now back to a normal life.
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Old 03-05-2015, 12:06 AM   #24
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Noted today that my quarterly taxes paid last year were more than double the highest amount I ever earned working for someone else. Granted it's more than 30 years since I worked for someone else, but it sure feels good to be contributing a substantial amount to the national kitty. Not like some of you rollers, but not bad for a shmoo from Dogpatch.
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Old 03-05-2015, 06:25 AM   #25
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Congratulations to the OP on his options. However, this highlights the difficulty in getting the tax code changed. No one really cares about their neighbor paying very high taxes until someone else's neighbor is them.

In no way am I trying to be difficult, but was the OP troubled in prior years when others continued to pay almost half their income in taxes.....whether it be W-2 income or options? It is very easy to say "rich man's problems" until you are that man. Getting $600,000 in stock options after working for 20-25 years then paying half of it in taxes does not by itself make one a rich man. It just makes one plenty "pissed off". I am not venting one year of pain but many.
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Old 03-05-2015, 08:00 AM   #26
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What is interesting is that, I believe, that if you were given a small percentage of the company vs being granted options and the company sold, your gain would be taxed at the capital gains rate and not ordinary income rates. So, the owner of the company, when they sold, probably paid a lower tax rate than the people excising options.
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Old 03-05-2015, 08:03 AM   #27
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At least you got something out of yours.

We had 40,000 stock options expire worthless after the company lagged the market post dot com boom. People hired just 2 years before us were multi millionaires.

Really opened my eyes to how much of a lottery ticket everything is. Which is why I don't make fun of people who play the lotto or trade stocks.
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Old 03-05-2015, 08:12 AM   #28
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My old officemate had something like 8M in options from dot coms but the price dropped from $80 to $60 the week he was able to exercise. He kept thinking it would go back up but it never did and they were worse than worthless.

He told me he was on the hook for a huge amount of taxes. I don't remember the details but somehow he managed to avoid the tax liability.
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Old 03-05-2015, 08:15 AM   #29
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... Getting $600,000 in stock options after working for 20-25 years then paying half of it in taxes does not by itself make one a rich man. ....
This is a problem I have with our current progressive tax code. Someone who has a one time taxable windfall (which probably was actually 'earned' over many years), they are treated the same as someone who has that income every year.

I'm fine with some level of 'progressiveness' in our tax system, a 'rich' person has more disposable income, and higher rates are not as 'painful' to them as they are a poor person. But someone who cashes in options that they earned over many years is simply not as 'rich' as the person who makes that same amount year in and year out - yet they are taxed the same (on the same types of income).

Not that I expect it to happen, but going from an 'income' based tax system (and I think 'income' is hard to define), to a 'spend' based tax system (National Sales Tax) would be better. Your spending is a better (but still imperfect) measure of wealth than 'income'. A person with $100M might have zero taxable income (sell stocks with no gain, live off some cash), but it is unlikely that they spend like a pauper.

I had a large cap gain one year (slipped up on my tax planning), and paid 'rich man' taxes. But my spending didn't change, because I knew that was a one time deal (and I reinvested it anyhow). So an NST would not have treated me like a 'rich man' that one year.

-ERD50
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Old 03-05-2015, 08:29 AM   #30
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But someone who cashes in options that they earned over many years is simply not as 'rich' as the person who makes that same amount year in and year out - yet they are taxed the same (on the same types of income)..
There used to be a concept called "income averaging" that let you smooth out a spiking in incoming (up or down). Apparently farmers and fisherman can still do this to some extent.

When I cashed out my options I had the luxury of spreading it out over a few years. That helped with taxes quite a bit, though not everyone can do that.

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Not that I expect it to happen, but going from an 'income' based tax system (and I think 'income' is hard to define), to a 'spend' based tax system (National Sales Tax) would be better. Your spending is a better (but still imperfect) measure of wealth than 'income'.
I agree that would be better, but the problem as I see it is that we're more likely to add more spending taxes, while NOT taking away income taxes. I know folks who advocate adding a national VAT without eliminating the income tax.

It'll be interesting to see if tax reform happens after the next presidential cycle. There are already some interesting proposals along those lines (see today's WSJ).
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Old 03-05-2015, 08:50 AM   #31
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There used to be a concept called "income averaging" that let you smooth out a spiking in incoming (up or down). Apparently farmers and fisherman can still do this to some extent.

....
yeah, I remember being pretty bummed when the 1986 tax reform got rid of 5 year averaging. (I finished law school in '85, and DW finished Med in '86....) Then again, we were poster children for repeal of the law, I suppose.

Another anecdote in support of tax diversification in retirement funds. You never know what the law is going to be ....
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Old 03-05-2015, 09:02 AM   #32
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I think a VAT would be a craigslist nightmare.
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Old 03-05-2015, 09:53 AM   #33
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Regarding the past "income averaging" allowance in the tax code, I remember being able to use it back in the early 80s. I think it is a lot fairer to people who have an income surge one year, then a lot lower the next.

I do not know when it was taken away, but in the late 2000s, as a freelance and contract worker, I had a high-income year that made me pay AMT with all kinds of deductions disallowed, followed by a year with little money coming in. The tax burden was nowhere as high as people with stock options, but enough to make me swear and curse. If my income were more even, I would be paying a lot lower taxes. But the tax code is not really about fairness, is it?

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I could cry!!!! Oh the tax pain I'm about to endure.
I wonder if any tax payer has appealed to the Supreme Court, claiming that the tax code is violating the Eight Amendment prohibiting the federal government from imposing excessive bail, excessive fines, or cruel and unusual punishments...

But I guess it would be pointless, as we have had confiscatory marginal tax rates as high as 94%. In fact, the top federal tax rate was 70% as recently as 1980 for income above $563K in today's dollars.

See: Income tax in the United States - Wikipedia, the free encyclopedia.
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Old 03-05-2015, 10:07 AM   #34
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Taxes were finalized today. It was a large (large to me) stock cash out. Glad it's over with and done. Been paying quarterly and now the monkey is off my back with the final 1099's in and completed. A grand total of $263k paid to the Fed. for 2014.

Now back to a normal life.
Take heart from the fact that you only had the endure that pain once and not year, after year ,after year like others do...
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Old 03-05-2015, 10:26 AM   #35
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Take heart from the fact that you only had the endure that pain once and not year, after year ,after year like others do...
Yes, particularly those who do OMY, then OMY, then OMY...

Me, I would rather take off in my motorhome, touring the beautiful North American continent. Life's short, and there are many places to see.
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Old 03-05-2015, 10:33 AM   #36
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Yes, particularly those who do OMY, then OMY, then OMY...

Me, I would rather take off in my motorhome, touring the beautiful North American continent. Life's short, and there are many places to see.
Yet you bog yourself down with two homes.

I agree with seeing North America. Maybe South America too!
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Old 03-05-2015, 10:41 AM   #37
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Eh, I could have stopped work earlier when I had only one home, but I already bought the 2nd home before I discovered this Web site touting the benefits of goofing off early.

And about the motorhome, well, I am not a perpetual traveler, and need places to go back to to relax between RV trips.
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Old 03-05-2015, 10:46 AM   #38
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Back on federal income taxes, I just saw that the top 1% in the US makes 19% of all income, but pays 49% of the taxes. This is info from the IRS.
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Old 03-05-2015, 01:02 PM   #39
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What is interesting is that, I believe, that if you were given a small percentage of the company vs being granted options and the company sold, your gain would be taxed at the capital gains rate and not ordinary income rates. So, the owner of the company, when they sold, probably paid a lower tax rate than the people excising options.

If you were given a piece of the company you would have a taxable event... stock grants are taxable as ordinary income... sure, the gain is not, but it is not tax free...


Also remember that options are not always exercised... I would get very small options and at least half of what I received never paid me a dime... most of the time if they were positive it was only a few hundred dollars to less than $2K.... only the very first one was more valuable... but then they dropped the number given down... (these were given to every employee.... only the last couple of years did I get my own)...
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Old 03-05-2015, 01:06 PM   #40
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Originally Posted by ERD50 View Post
This is a problem I have with our current progressive tax code. Someone who has a one time taxable windfall (which probably was actually 'earned' over many years), they are treated the same as someone who has that income every year.

I'm fine with some level of 'progressiveness' in our tax system, a 'rich' person has more disposable income, and higher rates are not as 'painful' to them as they are a poor person. But someone who cashes in options that they earned over many years is simply not as 'rich' as the person who makes that same amount year in and year out - yet they are taxed the same (on the same types of income).

Not that I expect it to happen, but going from an 'income' based tax system (and I think 'income' is hard to define), to a 'spend' based tax system (National Sales Tax) would be better. Your spending is a better (but still imperfect) measure of wealth than 'income'. A person with $100M might have zero taxable income (sell stocks with no gain, live off some cash), but it is unlikely that they spend like a pauper.

I had a large cap gain one year (slipped up on my tax planning), and paid 'rich man' taxes. But my spending didn't change, because I knew that was a one time deal (and I reinvested it anyhow). So an NST would not have treated me like a 'rich man' that one year.

-ERD50


One of the options is to spread the options over a few years... most options I have heard about are good for 10 years... instead of waiting to the very end to cash out... start in year 6 with 20%.... might lower overall taxes... then again, it might not if the person is highly paid....
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