I'm an example of a not-even-particularly-early employee that joined a startup at Series A, exercised the majority of my options almost five years ago, and have been holding on to the now-public shares with the intent of taking advantage of QSBS. I have literally watched the stock go up and down without pulling the trigger because of the promised tax breaks. Pulling the rug from underneath me is not what I would call ethical. There are many other early employees in my cohort doing the same.
Does it seem ethical never paying any income tax? I understand why some people will be upset, making less money than they expected. But if you were to judge the system blindly without knowing if you were going to be in a position to take advantage of it or not, does it seem fair?
I think it would be hard to argue it's a good policy that some people pay zero taxes, especially on large sums of income. Simply paying capital gains which is below normal income rate seems like a decent compromise. Why should it be treated any different?
The ethics I'm disputing are those of not grandfathering in those folks that have made financial decisions based on existing tax law. I would have made very different calls (quite likely more beneficial to my situation) had I not been relying on QSBS. I have no problems paying taxes in general, as one would with RSUs, for example.
I don't see the ethics in defending, but you're closing the loophole I intended to use. Pushed to the extreme, I bet slave holders were like, well I wouldn't have bought that slave yesterday if I knew you were going to free them today!
That's a hell of a stretch there. Anything in the tax code can be a loophole if viewed from the right angle. I don't see anything unethical in taking advantage of a LAW that trades early risk-taking for some later tax break, for the benefit of small business creation. Anyways, we're getting dangerously close to Godwin's law territory here, so I'm bowing out of this thread.
Many people join companies early enough to be compensated in equity, not options and also don't have the title/requirement of "co founder". People also early exercise.
Lots of people still get options that expire pretty soon after leaving a company, right? So unless you want to be stuck at one company, you have to exercise.
