[pjschlic]

The original 4.8M valuation (which is his strike price - extrapolating from his share price and ownership %) has now increased to ~40M (extrapolated from 20M raise, estimating ~100M preferred shares valuation and 40% of that for 409A valuation[1]). This means 4k outlay for initial stock, but they are now valued at ~33.2k, incurring some short term capital gains of ~5.6k. This still seems like a steal, as is the value dropped on that valuation of 33k I think it can be recognized as a loss to offset other earnings, so generally I don't think the tax is that bad a deal (if the person has the cash on hand).

[1] 41% is average ratio from here: https://www.capshare.com/blog/409a-valuation-guide/

[pfarnsworth]

I don't know what the OP's marginal tax rate was, but if he were a California resident, his taxes would be more around 15k.

[hkmurakami]

Thx for the analysis.

Fwiw capital loss can only be applied to offset capital gains, other than 3k/year.

[syntheticcdo]

Capital losses also carry forward for your entire life. Either 3k a year of offset ordinary income until you die, offset any future capital gains, or have written off your entire loss.