Ask HN: Thinking of leaving California. Should I vest my options while here?

3 points by DidISayTooMuch 5 years ago | 8 comments

I've heard that California taxes capital gains if you had ever been in the state even if you don't live there anymore?

I have some stock options for a non public company (series B), should I vest them while I'm in CA or should I move elsewhere first and then vest to avoid some cryptic CA tax?

AnimalMuppet 5 years ago |

Don't go too far out of your way to avoid paying taxes on options. When money's growing on trees, pick it, and pay the taxes.

DidISayTooMuch 5 years ago | |

I don't think this is sound advice. Any half intelligent person will do their best to make the most out of their income through legal ways.

AnimalMuppet 5 years ago | | |

Yeah, I did that. On December 16 (of some year), I decided that if I waited until next year, I could get the same money and pay a lower incremental tax on it. Except that on December 18, the market decided that it didn't like our stock any more, and I couldn't get the same money next year.

So I say: It's fine to make the most of your income through legal ways. But sometimes doing so can have surprising effects on your actual income, not just on the taxes. So, don't go too far out of the way to avoid the taxes, because it can burn you...

pinewurst 5 years ago |

I thought the FTB rule was that you were subject to tax if the options themselves were awarded in CA, regardless of eventual vest location. Unless you were a hired remote employee of a CA company, I think.

DidISayTooMuch 5 years ago | |

Thanks for the reply. I was not hired as remote employee. Was hired in CA. So lets say that I got 10,000 stock options (strike @ $1.00) that vests over 4 years. 3 of those years I have been in CA and 1 year in Texas.

Let's assume my company goes IPO in 2024 (it's a lottery, I understand), and assume each share is worth $10.00. Which means my 10,000 shares will be worth $100,000.

So I will owe tax on 7500 of those shares to CA? Because I've been there 3 out of those 4 years? That is ($10.00 - $1.00) * 7500 = $67500 of my income will be taxed by CA? And remaining amount will be taxed by Texas?

Even if I move to Puerto Rico, where there are no capital gains, I still owe CA taxes?

smartician 5 years ago | | |

My understanding is that you will owe taxes on all 10,000 shares, since you were in CA when they were granted. Vesting dates don't matter.