Do you have to pay this 1% tax on stock you own in companies you've founded? I.e. would the founder of a successful new startup that had such a high valuation in its last round that his stock was worth $50 million on paper have to somehow come up with half a million dollars every year to pay taxes?
No. His stock was near zero when he acquired (created) them. He'll pay full cap gain rates when he realizes them (which is 15% cap gains rate which is not too bad for him; I pay a lot more on my labor gains). He owes no tax until then. If you received stock worth , say, one million , you might want to sell 1/3 to pay the tax. Otherwise if stock price goes to zero you've got a million in losses to write off which is hard to do without a million in gains to offset it.
How does owning the 1% stock that doesn't get a pay out when the purchase occurs affect taxes? Do you have to pay taxes on the perceived value of the 1%? Can you consider it a loss?
No, it's wealth tax. I know what taxes I'm paying. Maybe my wording is not very precise, and I'm not a tax lawyer, but I do know founder shares remain valued nominally and you are not forced to sell anything even when your company gets very valuable.
Wrong. He said he's going to eliminate capital gains taxes on startups not on startup investors. So if your startup buys stock in other companies and makes a capital gain, it doesn't pay taxes on it. Hear recently of any startup doing such a thing? No, I didn't think so.
So 1% wealth tax is equivalent to 50% tax on the return of the asset, every year.
Say what you want, but this makes holding the asset or investing a lot less attractive. It will affect people's decisions and willingness to invest. Maybe we're OK with less investment but we shouldn't assume there is no impact.
In addition what if this is a volatile asset (read: startup) whose value goes up and down? Will the gov't give you a refund if it loses 20% of its value 10 years in?
What if the asset is illiquid (again:startup)? Who will lend to an otherwise not-wealthy startup founder 1% of their company's paper value every year to pay the tax? Because if the startup fails most founders will have to declare bankruptcy (having paid years of paper wealth taxes with no positive outcome in the end).
Yeah, but those taxes are based on the value of the shares today ($1.5m) minus what it'll cost him ($4k).
Even though he's not actually profiting on that difference yet, you still usually owe taxes on it. So we're talking hundreds of thousands of dollars in taxes.
In terms of tax, I believe I can be offered "founder's shares", ie shares that have no value (from the taxman's perspective) that vests over a period. Therefore, my income tax for receiving stocks should be minimal. Canada has a 750k tax exemption from capital gain from owning small businesses so tax is not my top worry if it is done properly
Presumably only on the capital gains, assuming any. So if the stock was taxed as being valued at X when you received it, and you sold it at x + y , you'd need to pay taxes on y.
How would his taxes have reflected the percentage of this company he owned? You pay taxes on your income, which wouldn't be affected here. You pay capital gains tax on stock when you sell which he didn't do at any point.
My understanding is that you pay taxes not on the current value, but on the difference between the value of the stock and the price you paid for it. It's essentially treated as income.
Do Americans have to pay income tax whenever value of stock appreciates (even if he does not sell in the market)? I doubt it. Since valuation of stock would vary.
Here in India, the only tax Mankiw would have to pay is when he sells the stock after 30 years and gets a capital gain. So, he would still have an effective 8% compound rate. So he would end up paying tax on $10000. Assuming 30%, he would still keep $7000.
I think the op was saying that you already owned the stock - that now becomes worth 1,000,000 and presumably would have paid income tax for the FY when you vested.
You surly don't pay income tax on the gain of already owned stock but CGT.
Back in the day 2000's I did own stock that was worth over 1,000,000 certainly wouldn't have had to have paid income tax if we had been bought out at point - but that was in the UK
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