[BenchRouter]

Here's what's confusing me: Why would this make any sense, at all?

From the government's point of view, they were trying to maximize tax revenue, right? And theoretically that occurs when the security price is at a (local) maximum, which would also likely be when employees choose to exercise.

Or is the idea here that they can tax options at the short-term rate as opposed to the long-term rate?

And even then, does that really make up for the substantial difference in market price (and thus taxes)? The "market price" (whatever that means here) of an early-stage startup's options has to be significantly lower than a post-IPO company.

[URSpider94]

You’re still taxed on all of the gain. The initial taxation upon vesting would reset the basis. Any additional gains would be taxed when you sell the underlying shares. It would have done two things: a. Pull in revenue to an earlier date (a key factor in this tax plan, since all of the gain/loss calculations are on a 10-year timeline) and b. Lock in gains, even if the shares are later worthless. Yes, you can theoretically write off the losses, but only a few thousand dollars at a time if you don’t have offsetting gains.

[dragonwriter]

> From the government's point of view, they were trying to maximize tax revenue, right?

No; there's basically no political faction that is interested in revenue maximization.

[lloydde]

The government could lamely argue that a lot of tax money is being left on the table as options are only exercised when sold or leaving a company, if at all. Exercising can trigger a tax burden, if an Inceptive Stock Option (ISO), because of alternative minimal taxes. Although, I didn’t like the proposal, it would have simplified taxation of stock options.

[s73ver_]

"From the government's point of view, they were trying to maximize tax revenue, right?"

This is a GOP tax bill, so no, not really.