What's new
Fantasy Football - Footballguys Forums

This is a sample guest message. Register a free account today to become a member! Once signed in, you'll be able to participate on this site by adding your own topics and posts, as well as connect with other members through your own private inbox!

Tax Question (1 Viewer)

chet

chet

Footballguy
I have been asked to join the board of a private company.  The company sent me a "Strategic Advisor Services Agreement" that outlines my responsibilities and compensation.  A couple of salient points:

Equity:  Contractor will receive one hundred-fifty thousand (150,000) shares of xxxxxx stock or cash equivalent upon execution of this agreement.

Duties of Contractor:  The Contractor will be named to the open common share Board seat and shall provide Strategic Business support.

Independent Contractor Status:  Contractor is an Independent contractor who will be issued a 1099 IRS form at the end of the year for all monies paid under this Agreement and Contractor shall be responsible for any and all federal, state and local taxes accruing thereto.  Nothing contained herein is intended to, nor shall it prevent and/or prohibit, Contractor from providing services to other clients subject to the further provisions contained in this Agreement.

Does anyone have experience with the taxation of this type of stock grant? The third point says a 1099 will be issued for all monies paid--does stock count as monies paid?  How do they value the stock?

 
I wish you luck at getting an answer... but I saw the thread title and knew what kind of actual question was coming  :lol:  

 
chet said:
I have been asked to join the board of a private company.  The company sent me a "Strategic Advisor Services Agreement" that outlines my responsibilities and compensation.  A couple of salient points:

Equity:  Contractor will receive one hundred-fifty thousand (150,000) shares of xxxxxx stock or cash equivalent upon execution of this agreement.

Duties of Contractor:  The Contractor will be named to the open common share Board seat and shall provide Strategic Business support.

Independent Contractor Status:  Contractor is an Independent contractor who will be issued a 1099 IRS form at the end of the year for all monies paid under this Agreement and Contractor shall be responsible for any and all federal, state and local taxes accruing thereto.  Nothing contained herein is intended to, nor shall it prevent and/or prohibit, Contractor from providing services to other clients subject to the further provisions contained in this Agreement.

Does anyone have experience with the taxation of this type of stock grant? The third point says a 1099 will be issued for all monies paid--does stock count as monies paid?  How do they value the stock?
Click to expand...
it doesn't sound like an option, so I believe it is a grant or gift.  the value will be the value of the stock when cashed, IMO.  I believe you will get a 1099-B for this.  Is the stock considered vested?

 
chet said:
I have been asked to join the board of a private company.  The company sent me a "Strategic Advisor Services Agreement" that outlines my responsibilities and compensation.  A couple of salient points:

Equity:  Contractor will receive one hundred-fifty thousand (150,000) shares of xxxxxx stock or cash equivalent upon execution of this agreement.

Duties of Contractor:  The Contractor will be named to the open common share Board seat and shall provide Strategic Business support.

Independent Contractor Status:  Contractor is an Independent contractor who will be issued a 1099 IRS form at the end of the year for all monies paid under this Agreement and Contractor shall be responsible for any and all federal, state and local taxes accruing thereto.  Nothing contained herein is intended to, nor shall it prevent and/or prohibit, Contractor from providing services to other clients subject to the further provisions contained in this Agreement.

Does anyone have experience with the taxation of this type of stock grant? The third point says a 1099 will be issued for all monies paid--does stock count as monies paid?  How do they value the stock?
Click to expand...
I don't have experience, per se, with this exact situation.  That said, good friends who have recieved stock grants tell me they are taxed as income.   The "cash equivalent" I believe is your key clue.

If you received options, those wouldn't be taxed until exercised.

 
I just spoke to the CEO who said they've structured the grant so that there are no immediate tax implications assuming I take the shares as opposed to the cash.  They are RSUs (restricted stock units) that vest upon change of ownership.  Great news obviously especially since there was a $5.50 offer a year ago.

 
chet said:
I just spoke to the CEO who said they've structured the grant so that there are no immediate tax implications assuming I take the shares as opposed to the cash.  They are RSUs (restricted stock units) that vest upon change of ownership.  Great news obviously especially since there was a $5.50 offer a year ago.
Click to expand...
You might want to inquire whether an 83(b) election makes any sense.  

 
chet said:
Quick unpacking of that please.  Good to see you, GB!
Click to expand...
Generally, you can pay tax at ordinary rates based on value now, and then just capital gains when you dispose. If no 83(b) election, pay at ordinary rate based on value at time it vests.

 
You need to consult your own advisor on this not only for the tax implications but other protections (e.g adequate D&O insurance). 

 
chet said:
Great.  Thanks.  If you make an 83(b) election, how is it taxed?
Click to expand...
That is the scenario my first sentence was referring to. You would pay tax in year of election at ordinary rates based on the fair market value at that time. That value becomes your tax basis. You don't pay tax again until you dispose of the shares (no tax at vesting).

With no election, there is no tax in year of issuance. You would pay tax at ordinary rates at value at time of vesting. 

Disadvantage of the election is accelerating tax. Advantage is that you can kick more to the lower capital gains rate if you expect appreciation between now and the time it vests.

 
Don Quixote said:
That is the scenario my first sentence was referring to. You would pay tax in year of election at ordinary rates based on the fair market value at that time. That value becomes your tax basis. You don't pay tax again until you dispose of the shares (no tax at vesting).

With no election, there is no tax in year of issuance. You would pay tax at ordinary rates at value at time of vesting. 

Disadvantage of the election is accelerating tax. Advantage is that you can kick more to the lower capital gains rate if you expect appreciation between now and the time it vests.
Click to expand...
Thx

Can you make an 83(b) election on a private company?  How do you value the stock grant?  Are you allowed to discount the value due to restrictions, illiquidity, etc?

 
chet said:
Thx

Can you make an 83(b) election on a private company?  How do you value the stock grant?  Are you allowed to discount the value due to restrictions, illiquidity, etc?
Click to expand...
I'm not sure the answers to those offhand.

 
chet said:
I just spoke to the CEO who said they've structured the grant so that there are no immediate tax implications assuming I take the shares as opposed to the cash.  They are RSUs (restricted stock units) that vest upon change of ownership.  Great news obviously especially since there was a $5.50 offer a year ago.
Click to expand...
You will get hit with a tax by the IRS for the fair value of the options at grant date, as they're income to you. So say your 150k of shares are worth 5.50 each, that will be considered 825k of taxable ordinary income, as the shares in your name are payment for services rendered as a board member to the company. Like salary income for the work we peons perform for our employers, IRS looks at your RSU grants through the same lens. 825k is your basis, and if you hold for 1 year and sell at 900k after that year, 75k is taxed as a LT gain. Sell the 900k value in less than a year, 75k taxed as ordinary income. Sell at 825k, non-taxable event, etc. 

Congrats!

ETA: Didn't realize this was for restricted stock. I think Don Quixote nailed it, get the 83b filed so you get the LTCG clock rolling ASAP. Vesting period is key here. You'll pay ordinary income on the price of the stock x shares now, and if the vesting window is 1 year or more, all "in the money" value after the tax hit now will be at LTCG rates which are in your favor. If you see the stock price rising, do this. 

 
Last edited by a moderator:
Let's see, you get 150,000 shares and they are currently trading at 0.1 cents a share so that's... well you do the math but it looks like you'll be rich.

 
Board members usually get a set payment for attending the meetings (1k being a common amount), plus expenses.  I'd hold out for that.  Your time is not free.

 
Bucky86 said:
:lol:  Oops. That's what I get for skimming your LOOK HOW RICH I AM threads. 
Click to expand...
A lot of hate in this one.  Try channeling your energy into something productive and maybe you'll do better for yourself.  Then again, maybe not.  

 
Steve Tasker said:
My advice:  quit looking for free advice on a message board and call your CPA and pay him for his time...
Click to expand...
Did that last week and yesterday with the new info--waiting for him to get back to me.  Lots of good advice and thoughts here but you do have to wade through the Bucky86 and other BS.

 
Redwes25 said:
Yup, best advice I have seen in this thread is not to consult a message board for this type of advise.  
Click to expand...
I appreciate a client who wants to read and understand their tax situation, but most of the time when someone asks me a question and leads with "I was reading online and..." or "I was talking to my friend and they said..." it's almost always wrong advice.  Chet presumably makes a lot of money and has a complex financial situation.  His CPA is the best person to advise him.

 
Steve Tasker said:
I appreciate a client who wants to read and understand their tax situation, but most of the time when someone asks me a question and leads with "I was reading online and..." or "I was talking to my friend and they said..." it's almost always wrong advice.  Chet presumably makes a lot of money and has a complex financial situation.  His CPA is the best person to advise him.
Click to expand...
He should also be discussing with his lawyers the term of the contract.  

 
Steve Tasker said:
I appreciate a client who wants to read and understand their tax situation, but most of the time when someone asks me a question and leads with "I was reading online and..." or "I was talking to my friend and they said..." it's almost always wrong advice.  Chet presumably makes a lot of money and has a complex financial situation.  His CPA is the best person to advise him.
Click to expand...
But how would we find out about his windfall if he didn't start this thread? :confused:  

 
Just got off a quick call with my CPA.  You can file an 83(b) for a private company.  To get the valuation, you start with the last valuation of the stock and then take discounts from there--illiquidity, lack of control, risk of forfeiture, etc.  and you pay income tax on the grant at that valuation and you're entitled to pay capital gains tax on any increase in value at a change in control etc.  

 
You must log in or register to reply here.

Similar threads

ghostguy123
Lien on property, any advice?
2
Replies
91
Views
4K
BassNBrew
BassNBrew
R
Is this a scam?
Replies
31
Views
1K
captain_amazing
captain_amazing
bleachercreacher
Home closing question
2 3
Replies
140
Views
4K
bleachercreacher
bleachercreacher

Users who are viewing this thread

Total: 1 (members: 0, guests: 1)
Back
Top