Advice: Windfall Makes Working Worse Than Not Working

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curiouskitty
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Advice: Windfall Makes Working Worse Than Not Working

Post by curiouskitty » Sun Oct 20, 2019 6:43 pm

Hi all! Looking for some advice.

Next year we are expecting a major windfall from an IPO, approximately $2.5 million, from a company my partner worked at many years ago. Current net worth is approximately $1 million. Combined income is around $430,000. We are mid-30's in tech in the Bay Area. Due to the substantial amount of capital gains we expect next year, it appears even with two tech jobs in California we would actually lose money working for the year compared to moving to a low / no tax state like the ones we previously lived in and not working at all. We usually wouldn't consider moving for tax reasons but two people working high stress jobs for a year to end up with less money doesn't make a lot of sense. We have many close ties in our former state and could easily move there, even if its not our favorite place.

We've looked at maybe investing in real estate via an opportunity zone investment to defer some of the taxes across multiple years. We wouldn't want to lock it up for 5-10 years again so it would probably mean doing it ourselves. We could potentially pitch one of our two jobs to work remotely. In the long run we would probably go travel if we went that route. Otherwise we can try to pitch our jobs on paying us more to stay in SF? It would have to be a good amount though. I estimate if one of us kept our job remotely and the other didn't work for the year, then we'd end up with a quarter of a million dollars more living outside the state at the time so we'd probably each need a six figure raise for it to really make sense at least at the year scale.

We've been invested in this stock for a long time so we would likely mostly diversify out of it next year unless there were substantial reasons to delay.

Any ideas? I know its a bit of a broad question but hard to know what to do in this unusual situation.

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Re: Advice: Windfall Makes Working Worse Than Not Working

Post by Starfish » Sun Oct 20, 2019 6:46 pm

Just curious, no pun intended :), how would you lose money?

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Re: Advice: Windfall Makes Working Worse Than Not Working

Post by curiouskitty » Sun Oct 20, 2019 6:49 pm

Well it depends what you consider a loss, in semantic terms. But the point is:

Live in California, two people work full-time, end up with $X at the end of the year
Live in other state, one person works full-time, end up with $X + $250,000 at end of the year
Live in other state, nobody works, end up with $X + $80,000

So as you can see, option 1 involves thousands of hours of additional work in a high stress environment for a substantially worse financial outcome. Pretty demotivating.

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Re: Advice: Windfall Makes Working Worse Than Not Working

Post by billthecat » Sun Oct 20, 2019 6:51 pm

Starfish wrote:
Sun Oct 20, 2019 6:46 pm
Just curious, no pun intended :), how would you lose money?
I think it's because 13.3% of $2.5M (the tax savings by being outside CA) > ~50% of $430K (his after-tax income from working in CA).

Even if you figure his after-tax income is 66% of $430K, he still seems to come out ahead by leaving CA.
Last edited by billthecat on Sun Oct 20, 2019 6:54 pm, edited 2 times in total.
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Re: Advice: Windfall Makes Working Worse Than Not Working

Post by curiouskitty » Sun Oct 20, 2019 6:52 pm

billthecat wrote:
Sun Oct 20, 2019 6:51 pm
Starfish wrote:
Sun Oct 20, 2019 6:46 pm
Just curious, no pun intended :), how would you lose money?
I think it's because 13.3% of $2.5M (the tax savings by being outside CA) > ~50% of $430K (his after-tax income from working in CA).
Yep this is a good way to put it

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Re: Advice: Windfall Makes Working Worse Than Not Working

Post by Jack FFR1846 » Sun Oct 20, 2019 6:54 pm

You say that the state you're thinking of for the tax savings is a state you live in sometime in the past and it's not your favorite place. Would you consider another tax free state for this? Maybe make a vacation out of it for a couple years.
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Re: Advice: Windfall Makes Working Worse Than Not Working

Post by Gill » Sun Oct 20, 2019 6:54 pm

.....
Last edited by Gill on Sun Oct 20, 2019 6:55 pm, edited 1 time in total.
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Re: Advice: Windfall Makes Working Worse Than Not Working

Post by whodidntante » Sun Oct 20, 2019 6:55 pm

You can work in the tax haven. In fact, it might be a good idea. I would not be surprised if California comes after you for the tax (whether owed or not). I would make sure I understand the different ways that Califonia can claim you as a resident, and obviate each of them. I might even ask a tax pro about it.

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Re: Advice: Windfall Makes Working Worse Than Not Working

Post by tfb » Sun Oct 20, 2019 6:56 pm

curiouskitty wrote:
Sun Oct 20, 2019 6:43 pm
Due to the substantial amount of capital gains we expect next year, it appears even with two tech jobs in California we would actually lose money working for the year compared to moving to a low / no tax state like the ones we previously lived in and not working at all.
Are you sure moving to another state will let you off the hook from the state income tax on the capital gains? I heard the state is very good at collecting taxes from former residents who sell only after they move.
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Re: Advice: Windfall Makes Working Worse Than Not Working

Post by MotoTrojan » Sun Oct 20, 2019 6:58 pm

Congrats on the IPO. Why can't you wait to move until the company at-least goes public? Then you'd have a 180 day lockup anyways, no? X+$80K sounds better than X, but I presume if the IPO slips out for whatever reason (global recession, etc...) then you will eat into that $80K pretty quick and start getting into the X-$__K realm.

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Re: Advice: Windfall Makes Working Worse Than Not Working

Post by curiouskitty » Sun Oct 20, 2019 6:59 pm

Gill wrote:
Sun Oct 20, 2019 6:54 pm
The only relevant tax is the CA income tax because you will have Federal wherever you are. Have you already realized this gain? If so, it is too late to do anything.
Gill
No gain has been realized, the stock will be sold next year.

In general it is mostly the state tax consideration, although conceivably by holding some stock longer or reinvesting it e.g. in an opportunity fund then capital gains on some of it could be deferred across multiple years for tax savings. If the opportunity zone funds were more liquid, it would probably be optimal to sell ~$622,050 per year for four years to fill the 18.8% bracket but not go into the 23.8% bracket much (federal + ACA 3.8%). But it may be too much hassle and too illiquid to bother with even if the potential savings is a substantial percentage of our net worth. Not sure if anyone has experience with that or any other ideas.

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Re: Advice: Windfall Makes Working Worse Than Not Working

Post by curiouskitty » Sun Oct 20, 2019 7:00 pm

MotoTrojan wrote:
Sun Oct 20, 2019 6:58 pm
Congrats on the IPO. Why can't you wait to move until the company at-least goes public? Then you'd have a 180 day lockup anyways, no? X+$80K sounds better than X, but I presume if the IPO slips out for whatever reason (global recession, etc...) then you will eat into that $80K pretty quick and start getting into the X-$__K realm.
Thank you! We feel very lucky

Even if we lost a few thousand, if we didn't have to work for the entire year it still seems like winning.

We don't expect any lockup period and it is almost certain to be in 2020 (I know many people are overconfident but barring major disaster this will happen)

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Re: Advice: Windfall Makes Working Worse Than Not Working

Post by MotoTrojan » Sun Oct 20, 2019 7:03 pm

curiouskitty wrote:
Sun Oct 20, 2019 7:00 pm
MotoTrojan wrote:
Sun Oct 20, 2019 6:58 pm
Congrats on the IPO. Why can't you wait to move until the company at-least goes public? Then you'd have a 180 day lockup anyways, no? X+$80K sounds better than X, but I presume if the IPO slips out for whatever reason (global recession, etc...) then you will eat into that $80K pretty quick and start getting into the X-$__K realm.
Thank you! We feel very lucky

Even if we lost a few thousand, if we didn't have to work for the entire year it still seems like winning.

We don't expect any lockup period and it is almost certain to be in 2020 (I know many people are overconfident but barring major disaster this will happen)
I am not well versed in the mechanics but I thought any early employee ($2.5M seems fairly early) would be locked out for 90-180 days.

Also would this additional $2.5M be enough to retire? Would $1.25M be enough? If not, is the longterm plan to work in the LCOL state anyways?

I agree, not working will be lovely and if it ends up being more financial lucrative to, win-win.

Wish me luck on my start-up :). I'd also be looking at a 7-figure payout, but we are a bit further away from IPO.

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Re: Advice: Windfall Makes Working Worse Than Not Working

Post by curiouskitty » Sun Oct 20, 2019 7:03 pm

tfb wrote:
Sun Oct 20, 2019 6:56 pm
curiouskitty wrote:
Sun Oct 20, 2019 6:43 pm
Due to the substantial amount of capital gains we expect next year, it appears even with two tech jobs in California we would actually lose money working for the year compared to moving to a low / no tax state like the ones we previously lived in and not working at all.
Are you sure moving to another state will let you off the hook from the state income tax on the capital gains? I heard the state is very good at collecting taxes from former residents who sell only after they move.
We have no house, cars, or other strong ties to California. They can claim what they will but if we don't live here at all in the year of the sale (or move back after) then I think they will have quite a tough case. Usually they have a good case against people who left a home in the state or move back shortly after, but if we actually cut ties to the state in a different calendar year then I'm not clear what they could claim other than trying to find some drivers license or voter ID card you forgot to transfer to the new state.

I'd love any information to the contrary of course.

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Re: Advice: Windfall Makes Working Worse Than Not Working

Post by Jebediah » Sun Oct 20, 2019 7:05 pm

Assuming your basis is zero, looks like you save about $330k if you flee CA for a no-tax state.

Be careful/smart about it; CA is known to play hardball with flee-ers.

Best to get out of the state as far in advance of the sale as possible. Leave no ties behind. Change addresses diligently. Do not move back to CA for five years. You have to really move away to be in the clear.

Seems worth it though. Go travel, FIRE, etc.

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Re: Advice: Windfall Makes Working Worse Than Not Working

Post by curiouskitty » Sun Oct 20, 2019 7:05 pm

Jack FFR1846 wrote:
Sun Oct 20, 2019 6:54 pm
You say that the state you're thinking of for the tax savings is a state you live in sometime in the past and it's not your favorite place. Would you consider another tax free state for this? Maybe make a vacation out of it for a couple years.
I think ideally we would become residents somewhere and then travel a lot to Europe and Asia as they appeal more. But yes I like this idea! :beer

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Re: Advice: Windfall Makes Working Worse Than Not Working

Post by VictoriaF » Sun Oct 20, 2019 7:20 pm

I have no experience with IPO windfalls, but a general concept is that when you don't need to work, working is easier. You feel free. You know that you can leave at will. You exhibit self-confidence and calm that others around you sense and treat with respect.

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Re: Advice: Windfall Makes Working Worse Than Not Working

Post by johnanglemen » Sun Oct 20, 2019 7:38 pm

It sounds like you earned this stock as compensation for working at the company pre-IPO within California. If that's the case, you will owe the tax on it whether you move or not.

See https://www.ftb.ca.gov/forms/misc/1004.html for example.

Are these RSUs or stock options? If stock options, are they incentive or nonqualified? And are they exercised or unexercised?

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Re: Advice: Windfall Makes Working Worse Than Not Working

Post by curiouskitty » Sun Oct 20, 2019 7:48 pm

johnanglemen wrote:
Sun Oct 20, 2019 7:38 pm
It sounds like you earned this stock as compensation for working at the company pre-IPO within California. If that's the case, you will owe the tax on it whether you move or not.

See https://www.ftb.ca.gov/forms/misc/1004.html for example.

Are these RSUs or stock options? If stock options, are they incentive or nonqualified? And are they exercised or unexercised?
At least 90% is ISO stock options with a small amount of RSUs. The ISOs were all exercised many years ago. The RSUs are a little different as they technically vest after the liquidity event but its a small percentage overall. The relevant section of the document you linked is
Nonresident of California on Date of Stock Sale
Qualifying Disposition
If you exercise an incentive stock option while a California resident or a nonresident and later sell the stock in a qualifying disposition while a nonresident, the income is characterized as income from the sale or disposition of intangible personal property having a source in your state of residence at the time you sold the stock. Accordingly, you are not subject to income tax by California even though the services that gave rise to the grant may have been performed in this state.
Last edited by curiouskitty on Sun Oct 20, 2019 7:50 pm, edited 1 time in total.

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Re: Advice: Windfall Makes Working Worse Than Not Working

Post by johnanglemen » Sun Oct 20, 2019 7:50 pm

curiouskitty wrote:
Sun Oct 20, 2019 7:48 pm
johnanglemen wrote:
Sun Oct 20, 2019 7:38 pm
It sounds like you earned this stock as compensation for working at the company pre-IPO within California. If that's the case, you will owe the tax on it whether you move or not.

See https://www.ftb.ca.gov/forms/misc/1004.html for example.

Are these RSUs or stock options? If stock options, are they incentive or nonqualified? And are they exercised or unexercised?
At least 90% is ISO stock options with a small amount of RSUs. The relevant section of the document you linked is
Nonresident of California on Date of Stock Sale
Qualifying Disposition
If you exercise an incentive stock option while a California resident or a nonresident and later sell the stock in a qualifying disposition while a nonresident, the income is characterized as income from the sale or disposition of intangible personal property having a source in your state of residence at the time you sold the stock. Accordingly, you are not subject to income tax by California even though the services that gave rise to the grant may have been performed in this state.
But did you already exercise, and if so, when? You will owe AMT at exercise time if not.

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Re: Advice: Windfall Makes Working Worse Than Not Working

Post by curiouskitty » Sun Oct 20, 2019 7:51 pm

I added a few more details to previous post but yes all ISOs were exercised many years ago so they would be a "qualifying disposition". AMT was already paid and then the next year we got it all back since we were no longer subject to AMT.

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Re: Advice: Windfall Makes Working Worse Than Not Working

Post by JBTX » Sun Oct 20, 2019 7:55 pm

I would recommend finding a CPA, or maybe even a tax attorney, who has experience dealing with CA income taxes and multi state resident issues. I'm not sure just moving relieves of the tax liability. But instead of speculating get somebody who is an expert on the subject. Given the substantial amount of one time income and tax spending a few hundred or even a couple of thousand to get it right may be worthwhile.

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Re: Advice: Windfall Makes Working Worse Than Not Working

Post by Tanelorn » Sun Oct 20, 2019 7:57 pm

Sounds like the CA government wants to pay you handsomely to leave for at least a year. I would take them up on it if it’s not too big an inconvenience to your longer term work/career plans.

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Re: Advice: Windfall Makes Working Worse Than Not Working

Post by curiouskitty » Sun Oct 20, 2019 8:00 pm

JBTX wrote:
Sun Oct 20, 2019 7:55 pm
I would recommend finding a CPA, or maybe even a tax attorney, who has experience dealing with CA income taxes and multi state resident issues. I'm not sure just moving relieves of the tax liability. But instead of speculating get somebody who is an expert on the subject. Given the substantial amount of one time income and tax spending a few hundred or even a couple of thousand to get it right may be worthwhile.
Yeah we probably will. But to be clear California has examples that make it clear this would be tax free as long as they deem we actually left. Here is one example from their doc above:
Example 6

On March 1, 2010, your company grants you incentive stock options. On March 1, 2012, you exercise your options. From the grant date to the exercise date, you were a California resident and performed all of your services in California. On February 1, 2013, you permanently moved to Illinois. On June 1, 2013, you sell your stock at a gain.

Determination:

You must make an AMT adjustment on your 2012 California return because you did not dispose of the stock in the year you exercised your option. California does not tax the capital gain in 2013 because you are a nonresident of California when you sell the stock.
This would be our exact situation except we would move longer before the stock sale (two different calendar years)

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Re: Advice: Windfall Makes Working Worse Than Not Working

Post by JBTX » Sun Oct 20, 2019 8:06 pm

curiouskitty wrote:
Sun Oct 20, 2019 8:00 pm
JBTX wrote:
Sun Oct 20, 2019 7:55 pm
I would recommend finding a CPA, or maybe even a tax attorney, who has experience dealing with CA income taxes and multi state resident issues. I'm not sure just moving relieves of the tax liability. But instead of speculating get somebody who is an expert on the subject. Given the substantial amount of one time income and tax spending a few hundred or even a couple of thousand to get it right may be worthwhile.
Yeah we probably will. But to be clear California has examples that make it clear this would be tax free as long as they deem we actually left. Here is one example from their doc above:
Example 6

On March 1, 2010, your company grants you incentive stock options. On March 1, 2012, you exercise your options. From the grant date to the exercise date, you were a California resident and performed all of your services in California. On February 1, 2013, you permanently moved to Illinois. On June 1, 2013, you sell your stock at a gain.

Determination:

You must make an AMT adjustment on your 2012 California return because you did not dispose of the stock in the year you exercised your option. California does not tax the capital gain in 2013 because you are a nonresident of California when you sell the stock.
This would be our exact situation except we would move longer before the stock sale (two different calendar years)
That seems crazy. A tax lawyer may be able to figure out a way to have your cake and eat it too. I am sure this stuff happens frequently in silicon valley.

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Re: Advice: Windfall Makes Working Worse Than Not Working

Post by NewMoneyMustBeSmart » Sun Oct 20, 2019 8:16 pm

curiouskitty wrote:
Sun Oct 20, 2019 6:43 pm
Hi all! Looking for some advice.

Next year we are expecting a major windfall from an IPO, approximately $2.5 million, from a company my partner worked at many years ago. Current net worth is approximately $1 million. Combined income is around $430,000. We are mid-30's in tech in the Bay Area. Due to the substantial amount of capital gains we expect next year, it appears even with two tech jobs in California we would actually lose money working for the year compared to moving to a low / no tax state like the ones we previously lived in and not working at all. We usually wouldn't consider moving for tax reasons but two people working high stress jobs for a year to end up with less money doesn't make a lot of sense. We have many close ties in our former state and could easily move there, even if its not our favorite place.
You're factually wrong that you end up with less money. You may make less per hour, but that's due to taxes. Depending on your philosophy, more money is better even if yield is less. But that's my philosophy not yours.

If you are going to leave California, research how to cut ties and I'd recommend doing it before 12/31/2019.

Puerto Rico or a no-tax state will make you $300k - probably worth it to live there for a year. Nevada, WA, Florida, Wyoming, South Dakota, Texas, all really nice.

Your goal of diversifying sounds good but spreading the diversification across many years is likely unwise.
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Re: Advice: Windfall Makes Working Worse Than Not Working

Post by curiouskitty » Sun Oct 20, 2019 8:28 pm

NewMoneyMustBeSmart wrote:
Sun Oct 20, 2019 8:16 pm
curiouskitty wrote:
Sun Oct 20, 2019 6:43 pm
Hi all! Looking for some advice.

Next year we are expecting a major windfall from an IPO, approximately $2.5 million, from a company my partner worked at many years ago. Current net worth is approximately $1 million. Combined income is around $430,000. We are mid-30's in tech in the Bay Area. Due to the substantial amount of capital gains we expect next year, it appears even with two tech jobs in California we would actually lose money working for the year compared to moving to a low / no tax state like the ones we previously lived in and not working at all. We usually wouldn't consider moving for tax reasons but two people working high stress jobs for a year to end up with less money doesn't make a lot of sense. We have many close ties in our former state and could easily move there, even if its not our favorite place.
You're factually wrong that you end up with less money. You may make less per hour, but that's due to taxes. Depending on your philosophy, more money is better even if yield is less. But that's my philosophy not yours.
It is not just less per hour. We will literally end up with less money compared to moving to another state and not working. We would pay almost $600,000 in extra taxes near year if we sold the stock and worked in CA compared to not working in another state and we earn less than that amount so it would result in less money.

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Re: Advice: Windfall Makes Working Worse Than Not Working

Post by Starfish » Sun Oct 20, 2019 8:45 pm

Changing residency is not that straight forward and California is very "grabby". Do you plan to come back at the end of the year? I am not sure how easy is to do it for short term.

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Re: Advice: Windfall Makes Working Worse Than Not Working

Post by Starfish » Sun Oct 20, 2019 8:48 pm

billthecat wrote:
Sun Oct 20, 2019 6:51 pm
Starfish wrote:
Sun Oct 20, 2019 6:46 pm
Just curious, no pun intended :), how would you lose money?
I think it's because 13.3% of $2.5M (the tax savings by being outside CA) > ~50% of $430K (his after-tax income from working in CA).

Even if you figure his after-tax income is 66% of $430K, he still seems to come out ahead by leaving CA.
I get it now, thank you.
I forgot California has the same tax for capital gains.
If you don't plan to come back anytime soon, probably is doable. I would ask a lawyer.
Last edited by Starfish on Sun Oct 20, 2019 8:55 pm, edited 1 time in total.

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Re: Advice: Windfall Makes Working Worse Than Not Working

Post by AlohaJoe » Sun Oct 20, 2019 8:52 pm

Starfish wrote:
Sun Oct 20, 2019 8:45 pm
Changing residency is not that straight forward and California is very "grabby". Do you plan to come back at the end of the year? I am not sure how easy is to do it for short term.
This would be my biggest question. If you plan to move back after one year, I think California would easily prove they are still your "domicile" and claim the taxes. You need to make permanent plans to move away. Selling your house in California. Buying a house in the new place. Registering car in the new place. Registering to vote in the new place. Etc etc. I would also talk to a professional who has dealt with it before -- there are a lot around SF with experience in this -- but I'd go in assuming it is a 3-5 year move. Which might dramatically change the calculation. You may "make" money in Year 1 by moving but lose money in Years 2-5.

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Re: Advice: Windfall Makes Working Worse Than Not Working

Post by curiouskitty » Sun Oct 20, 2019 8:57 pm

Starfish wrote:
Sun Oct 20, 2019 8:45 pm
Changing residency is not that straight forward and California is very "grabby". Do you plan to come back at the end of the year? I am not sure how easy is to do it for short term.
No we would not come back at the end of the year. I agree that would be iffy.

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Re: Advice: Windfall Makes Working Worse Than Not Working

Post by clip651 » Sun Oct 20, 2019 11:29 pm

I will just throw out the idea that you don't actually know the size of your windfall until after the IPO and stock sale right?

Estimates of share prices prior to IPOs tend to vary considerably in accuracy, just from watching the news before and after various IPOs.

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Re: Advice: Windfall Makes Working Worse Than Not Working

Post by KyleAAA » Mon Oct 21, 2019 12:22 am

Get jobs in Seattle. No state income tax and you could easily clear $430k in household income. Would be a nice change for a year or two, I'm sure.

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Re: Advice: Windfall Makes Working Worse Than Not Working

Post by fareastwarriors » Mon Oct 21, 2019 12:40 am

So You guys are the one driving up my home prices. Thanks :sharebeer
Last edited by fareastwarriors on Mon Oct 21, 2019 1:00 am, edited 3 times in total.

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Re: Advice: Windfall Makes Working Worse Than Not Working

Post by sf_tech_saver » Mon Oct 21, 2019 12:50 am

Last year I somewhat faced this as my company went IPO and I ended up with a $6M 2018 W2, and thus a ~600k CA State Tax bill.

I had a lot less warning on moving (IPO was announced mid-2018 so had already worked in the state) and I really wanted to stay in the area. Ultimately though the easiest math was that my wife's roughly $250k/year job was bay area based as well.

Being in the bay area pays off, which is why people stay here. Unless you are making a windfall big enough to fully retire I think its good value.

After we stayed I got promoted, as did the wife. The cost of leaving the professional workforce for a year is bigger than 600k over your lifetime.

I also wanted to give back to the state which made that windfall possible....but that's a personal/emotional call.

I say there is a lot more money to be made staying fully employed in the bay area than dodging taxes by leaving it!
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Re: Advice: Windfall Makes Working Worse Than Not Working

Post by cookiez » Mon Oct 21, 2019 1:19 am

Just move the Seattle and get a job there. WA is no tax state. If you are in tech, it's easier to get a job. Everything is much more affordable.

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Re: Advice: Windfall Makes Working Worse Than Not Working

Post by sf_tech_saver » Mon Oct 21, 2019 1:30 am

cookiez wrote:
Mon Oct 21, 2019 1:19 am
Just move the Seattle and get a job there. WA is no tax state. If you are in tech, it's easier to get a job. Everything is much more affordable.
Probably the best move if you must.
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kcxie
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Re: Advice: Windfall Makes Working Worse Than Not Working

Post by kcxie » Mon Oct 21, 2019 2:23 am

How about to Reno. No state tax and easy to drive back if necessary

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RickBoglehead
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Re: Advice: Windfall Makes Working Worse Than Not Working

Post by RickBoglehead » Mon Oct 21, 2019 5:24 am

AlohaJoe wrote:
Sun Oct 20, 2019 8:52 pm
Starfish wrote:
Sun Oct 20, 2019 8:45 pm
Changing residency is not that straight forward and California is very "grabby". Do you plan to come back at the end of the year? I am not sure how easy is to do it for short term.
This would be my biggest question. If you plan to move back after one year, I think California would easily prove they are still your "domicile" and claim the taxes. You need to make permanent plans to move away. Selling your house in California. Buying a house in the new place. Registering car in the new place. Registering to vote in the new place. Etc etc. I would also talk to a professional who has dealt with it before -- there are a lot around SF with experience in this -- but I'd go in assuming it is a 3-5 year move. Which might dramatically change the calculation. You may "make" money in Year 1 by moving but lose money in Years 2-5.
OP clearly stated no house, no car.
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Re: Advice: Windfall Makes Working Worse Than Not Working

Post by noco-hawkeye » Mon Oct 21, 2019 5:33 am

VictoriaF wrote:
Sun Oct 20, 2019 7:20 pm
I have no experience with IPO windfalls, but a general concept is that when you don't need to work, working is easier. You feel free. You know that you can leave at will. You exhibit self-confidence and calm that others around you sense and treat with respect.

Victoria
I agree with Victoria, and also moving to WA seems like it would be a natural place to consider.

The other aspect with Victorias point is that you can choose a job that interests you, vs trying to take a job to make the most money.

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Re: Advice: Windfall Makes Working Worse Than Not Working

Post by bltn » Mon Oct 21, 2019 6:50 am

sf_tech_saver wrote:
Mon Oct 21, 2019 12:50 am
Last year I somewhat faced this as my company went IPO and I ended up with a $6M 2018 W2, and thus a ~600k CA State Tax bill.

I had a lot less warning on moving (IPO was announced mid-2018 so had already worked in the state) and I really wanted to stay in the area. Ultimately though the easiest math was that my wife's roughly $250k/year job was bay area based as well.

Being in the bay area pays off, which is why people stay here. Unless you are making a windfall big enough to fully retire I think its good value.

After we stayed I got promoted, as did the wife. The cost of leaving the professional workforce for a year is bigger than 600k over your lifetime.

I also wanted to give back to the state which made that windfall possible....but that's a personal/emotional call.

I say there is a lot more money to be made staying fully employed in the bay area than dodging taxes by leaving it!
Wanting to “give back” to your state in the form of paying higher taxes is a very healthy way to look at it. Healthy in terms of your mind, not your finances. 🙄

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Re: Advice: Windfall Makes Working Worse Than Not Working

Post by JoeRetire » Mon Oct 21, 2019 7:28 am

curiouskitty wrote:
Sun Oct 20, 2019 6:43 pm
Due to the substantial amount of capital gains we expect next year, it appears even with two tech jobs in California we would actually lose money working for the year compared to moving to a low / no tax state like the ones we previously lived in and not working at all.
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Re: Advice: Windfall Makes Working Worse Than Not Working

Post by dknightd » Mon Oct 21, 2019 7:36 am

This windfall will be a once in a lifetime event. You have to look not just at this year, and next, but what you want in the years after that. Does one, or both, of your employers allow a year unpaid sabbatical? That might be an option.
I'd probably smile and be happy you have the money to pay this one year's extraordinarily high tax bill.

Edit: and pay estimated taxes, you do not want a surprise penalty for not giving paying the tax when it is due.

Edit2: I'm not sure how IPO's work. I assume the capital gains tax is not due till you sell the shares. But I could be wrong. It is possible that CA will determine the original shares were obtained as deferred compensation while working there, and, will want to tax the capital gains (or at least the original basis) no matter where you live. You might want to consult with somebody familiar with CA tax laws before moving away to avoid paying CA tax.
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Re: Advice: Windfall Makes Working Worse Than Not Working

Post by knowledge » Mon Oct 21, 2019 9:22 am

curiouskitty wrote:
Sun Oct 20, 2019 6:43 pm
Next year we are expecting a major windfall from an IPO, approximately $2.5 million, from a company my partner worked at many years ago.
Planning ahead is great, but this feels premature. After the WeWork debacle, many IPOs have been delayed, and if "market conditions" aren't right, they can be pushed further.

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Re: Advice: Windfall Makes Working Worse Than Not Working

Post by Reamus294 » Mon Oct 21, 2019 9:24 am

sf_tech_saver wrote:
Mon Oct 21, 2019 12:50 am
The cost of leaving the professional workforce for a year is bigger than 600k over your lifetime.
I agree with this. If you feel strongly about switching gears (traveling/working remotely/real estate investing) I'd say go for it. I would think it would be harder to find a similar paying job if you re-enter the workforce a year later, but you may also find a better opportunity.

Congrats on the IPO and the possible opportunity.

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Re: Advice: Windfall Makes Working Worse Than Not Working

Post by JGoneRiding » Mon Oct 21, 2019 9:33 am

Do you already own real estate in Ca? If so declaring yourself not a state resident may be hard but if not it shouldn't be that complicated but I would get started. Tell your works you are taking a 1 year sabbatical and try to leave in good terms.

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Re: Advice: Windfall Makes Working Worse Than Not Working

Post by BolderBoy » Mon Oct 21, 2019 9:56 am

AlohaJoe wrote:
Sun Oct 20, 2019 8:52 pm
This would be my biggest question. If you plan to move back after one year, I think California would easily prove they are still your "domicile" and claim the taxes. You need to make permanent plans to move away.
This is very important - your domicile must change.

And don't use phrases like, "taking a vacation from California", as that by implication means you are or may be going back.
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Re: Advice: Windfall Makes Working Worse Than Not Working

Post by McGowan » Mon Oct 21, 2019 11:47 am

My advice would be to not make life decisions based on things that have not happened and/or taxes. For perspective, I've been in the Private Equity business for 35 years and have had experience with many companies and IPOs.

MANY things could effect the valuation, timing or even IF the IPO happens at all. It is a big risk to make life decisions on a possible event with this level of uncertainty.

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Re: Advice: Windfall Makes Working Worse Than Not Working

Post by fareastwarriors » Mon Oct 21, 2019 12:38 pm

bltn wrote:
Mon Oct 21, 2019 6:50 am
sf_tech_saver wrote:
Mon Oct 21, 2019 12:50 am
Last year I somewhat faced this as my company went IPO and I ended up with a $6M 2018 W2, and thus a ~600k CA State Tax bill.

I had a lot less warning on moving (IPO was announced mid-2018 so had already worked in the state) and I really wanted to stay in the area. Ultimately though the easiest math was that my wife's roughly $250k/year job was bay area based as well.

Being in the bay area pays off, which is why people stay here. Unless you are making a windfall big enough to fully retire I think its good value.

After we stayed I got promoted, as did the wife. The cost of leaving the professional workforce for a year is bigger than 600k over your lifetime.

I also wanted to give back to the state which made that windfall possible....but that's a personal/emotional call.

I say there is a lot more money to be made staying fully employed in the bay area than dodging taxes by leaving it!
Wanting to “give back” to your state in the form of paying higher taxes is a very healthy way to look at it. Healthy in terms of your mind, not your finances. 🙄
He and his wife are still gainfully employed in the Bay and making great salary. I think their finances are just fine.

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Re: Advice: Windfall Makes Working Worse Than Not Working

Post by TropikThunder » Mon Oct 21, 2019 12:46 pm

fareastwarriors wrote:
Mon Oct 21, 2019 12:38 pm
bltn wrote:
Mon Oct 21, 2019 6:50 am
Wanting to “give back” to your state in the form of paying higher taxes is a very healthy way to look at it. Healthy in terms of your mind, not your finances. 🙄
He and his wife are still gainfully employed in the Bay and making great salary. I think their finances are just fine.
Did you read the rest of the thread? They would no longer be “gainfully employed in the Bay and making great salary”. They would not be in the Bay, not gainfully employed, and not making any salary since they want to quit their jobs and move out of California forever to avoid a (substantial) one-time tax hit.

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