Proposed Tax Reform Stands to Impact Equity and Performance-Based Compensation
Overall I think average comp full time employees at eaely stage startups will be a big beneficiary. They won't hit the exercise threshold, AMT will be gone, and ISO tax benefits and 409A valuation will remain.One problem I see is that the extended exercises that are popular these days convert from ISO to NQOs, so I wonder what that treatment will be like.Contractors lose some flexibility over NQOs, but imho they were unlikely to have extended exercise periods anyways so I think the impact is not as large as communicated?Executive especially at late stage companies lose out because of the exercise cap, but they're doing extremely well anyways so whatever.Employees at late stage companies might be in a bind here. They probably won't hit the ISO exercise cap (BC the value should be 409A based target than preferred price based) but the currently popular method of giving out RSUs that don't officially "vest" until the company goes public (or the employee leaves, I imagine) might get affected, and that's potentially significant.