Case studies after acquisitions

[jlevy]

Case studies after acquisitions

[jlevy]

From @lorensr in #46:

---

I think some may find it unclear how many times you're being taxed. I think it would be helpful to have one example per category, eg for the first:

You're granted a restricted stock award of 1% at an unfunded, pre-revenue company with an FMV of $100. You're living in CA making $90k, and you file an 83(b). You sell one year later when the company is valued at $4M, after a 20% seed round and 15% option pool.

• At time of grant, you pay ordinary tax on FMV.
  • FMV: 1% * $100 = $1
  • Tax: $1 * (28% federal income tax + 9.3% CA income tax) = $0.37
• At vesting, you pay nothing.
• At sale, you pay long-term capital gains tax on the gain.
  • Percent ownership: 1% * (100 / (100 + 20 + 15)) = 0.74%
  • Gain: ($4M * 0.74%) - $1 = $29,599
  • Tax: $29,599 * (15% federal + 9.3% CA) = $7,193
  • Total tax: $7,193.37

It would be nice if the three examples had the same situation so that the tax amount can be compared. Would probably be more practical with a longer gap before selling.

[jlevy]

@lorensr Feel free to make a few examples like yours above, either commenting here first or filing a PR.

[lorensr]

Okay! Does it look correct? In particular, while $100 is a common valuation during C corp formation, does the FMV change if you have no revenue or funding? I'm told you usually don't get your first 409a valuation until after your first round.