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principles of finance a la shmoop taxes okay yeah yeah so the subject of

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taxes is complex and we're gonna look at it perhaps overly simply and only from [tax form]

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the perspective of a single person filing a pretty simple tax return and

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not doing anything fancy like moving to Rwanda or you know Florida before taxes [map of Rwanda and Florida]

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are do we do here that these sunsets are lovely there taxes in the US as they

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relate to income come in two flavors federal and state and yes some cities

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have taxes hello Manhattan but we said we're gonna be simple here the federal [skyscrapers]

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tax laws apply to everyone who is a US citizen so they're relatively easy to

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detail here state taxes vary from state to state and individual states have

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vastly different attitudes about taxing income well Florida Texas Washington

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State Wyoming and a few others have no state income taxes California on the [map of the US with highlighted states]

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other hand has the highest state taxes topping out at 13.3% for each dollar

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above a million bucks and starting to tax investment income from the first

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dollar Plus in many cases when companies do go public employees can and will sell

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more than a million bucks in stock so they're often hit at this 13.3% level

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for even very junior employees and the accent of something to cry about until [child having a tantrum]

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you go to buy a crappy four bedroom home in Palo Alto that cost five million [large price tag on crappy home]

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dollars for most things tax related well there's little you can do about it other [Uncle Sam catches man in butterfly net]

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than pay but when it comes to young companies destined to someday go public

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or get sold for a big price there's one key decision that employees can make [employees partying]

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which can be a huge help to the tax hit they'll otherwise take specifically they

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can buy out their options alright let's make up another little story here and

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put you in the center you loyal employee of know whatever dot-com have a hundred

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thousand options with a dollar strike price your company is just being sold

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for twenty dollars a share and you are fully vested into all four years worth

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of options 25,000 a year 100,000 options yeah you own them you haven't bought out

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any of these options so you have a gain of 19 dollars a share it's 20 minus the

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dollar strike price at times a hundred thousand units for a total monetary gain

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pre-tax of 1.9 million dollars awesome wait until you see your tax bill

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especially in California yeah cuz after taxes in California well you netted [guy gets knocked out by tax rate]

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about a million dollars not at all a bad pay day at the office

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but still pretty painful how could you have made that bill less painful like

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you paid $900,000 in taxes you could have bought out your stock options along

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the way we'll have us that work well watch our video on qualified versus non [Shmoop website]

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qualified stock options and you'll get the magic answer but you could have

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spent a little money bottomed out on the shares and then sold to get long-term

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gain treatment instead of short-term gains and saved a boatload

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like God seriously the amount you save would buy a boat alright so go watch

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that video now it's got a 97 percent on Rotten Tomatoes like what do you want

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