Advice: Windfall Makes Working Worse Than Not Working

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

Post by fareastwarriors » Mon Oct 21, 2019 12:48 pm

TropikThunder wrote:
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.
I did read the thread. I wasn't responding to the OP. I was talking about sf_tech_saver's post, which bltn quoted.

:)

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

Post by onourway » Mon Oct 21, 2019 1:16 pm

I think that unless you are looking to make this change anyhow, this is a silly change for the long term. Continuity of your career is more valuable long-term than a temporary tax savings on a windfall.

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

Post by sf_tech_saver » Mon Oct 21, 2019 2:44 pm

TropikThunder wrote:
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.
I think he was quoting my situation :)

CA has kept paying us nicely. ~$1.5M/yr for me and $250k/ for her. No telling if I continue to remotely make that money if I try to skip-town for Texas to avoid the IPO hit.

Careers are long......and to the other points made here, IPOs are highly unstable and hard to plan around. I went from being worth $16M on paper to $8M after the lock-up period. Longest 6 months of your financial life.....
VTI is a modern marvel

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

Post by curiouskitty » Mon Oct 21, 2019 4:58 pm

Yeah for us the situation may be different as we could easily find other jobs paying as much whereas $1.5 million per year sounds harder to arrange. We are highly educated and have worked at successful companies so we have no worry about being unemployable in the next few years should we choose to work. The bigger question is with approximately $3 million after the windfall and taxes whether we should work much at all or FIRE with side projects / businesses as opportunity provides. From that perspective, staying in CA to further our careers may not make much sense unless we strike the IPO lottery again or substantially increase our compensation.

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

Post by adamthesmythe » Mon Oct 21, 2019 5:07 pm

3.5 million, partly before taxes, is not a lot to support many decades of retirement. Especially if you have been spending like a couple with 400K/ year to work with.

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

Post by protagonist » Mon Oct 21, 2019 5:12 pm

Depending on your age you might consider early retirement if you just came into $2.5M.
Check out any thread here by retirees...the overwhelming consensus is that working is worse than not working. regardless of windfall.

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

Post by dgm » Mon Oct 21, 2019 6:31 pm

McGowan wrote:
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.
this +1

pretty sure a bunch of employees took out loans for mortgages based on their IPO stock this yr in the bay area and are regretting it after watching the prices slide....

but imagine being a wework exec...oof...

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

Post by curiouskitty » Mon Oct 21, 2019 7:07 pm

adamthesmythe wrote:
Mon Oct 21, 2019 5:07 pm
3.5 million, partly before taxes, is not a lot to support many decades of retirement. Especially if you have been spending like a couple with 400K/ year to work with.
Nah we save heavily so we reached seven figure net worth before this windfall. For most of the time income has been in the ~$300-350k range and we were saving heavily even in the Bay Area.

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

Post by curiouskitty » Mon Oct 21, 2019 7:08 pm

dgm wrote:
Mon Oct 21, 2019 6:31 pm
McGowan wrote:
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.
this +1

pretty sure a bunch of employees took out loans for mortgages based on their IPO stock this yr in the bay area and are regretting it after watching the prices slide....

but imagine being a wework exec...oof...
Yes indeed. I thought WeWork looked terrible and was glad they pulled the IPO. It shows the market is still somewhat rational from time to time. In our case we would possibly leave jobs we could replace but its not like we would take out a mortgage or loan based on money we didn't have.

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

Post by SQRT » Mon Oct 21, 2019 7:21 pm

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
This is certainly a possible reaction. But in my case becoming FI really made me want to retire sooner. It got harder to show up every day and I think my performance suffered.

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

Post by mathwhiz » Mon Oct 21, 2019 7:50 pm

Why not look at job opportunities in Nevada, Texas, and Florida that may be of interest and consider a 2-3 year trial run at a new company. You get to experience another company and location at their dime hopefully paying relocation. You save the IPO taxes and if you don't like it go back to California.

Consider it like a tour of duty change in the Air Force. Your next assignment is in one of those 3 states. Deal with it and when it's over do something else. Your reward is saving hundreds of thousands in taxes.

Edited to add Washington State might work nicely too with Microsoft and Amazon there.

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

Post by halfnine » Tue Oct 22, 2019 3:20 am

If you don't completely cut all ties with California and stay away for a few years you could very well run into trouble. You can afford expert tax advice on this issue and I would suggest you receive it.

Dave55
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Re: Advice: Windfall Makes Working Worse Than Not Working

Post by Dave55 » Tue Oct 22, 2019 7:51 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!
I love your "VTI is a modern marvel"!

Dave

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

Post by novemberrain » Wed Oct 23, 2019 11:37 pm

I would consult with a tax professional regarding exit taxes. CA franchise tax board is notorious for catching ex residents and trying to wring any money.

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

Post by smectym » Thu Oct 24, 2019 1:07 am

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.
JBTX is right and, OP, you should follow his advice.

(1) It is true that high-tax State A may pursue those who State A perceives have fled their jurisdiction merely to escape State A’s taxation, but
(2) If the taxpayer has indeed ceased residency in State A, and indeed established residency in low-tax State B, then there’s really nothing State A can do about it.

So the issue becomes what ties taxpayer retains to State A, and are those ties sufficient to establish that taxpayer continues to avail himself of the benefits of State A residency, while seeking to dodge State A taxes. Usually, life is not so simple for taxpayer that taxpayer can summarily sever all cognizable contacts with State A. That’s where an attorney comes in handy: to explain to taxpayer what taxpayer must do, must not do, and may do while convincingly establishing domicile in State B and terminating domicile in State A.

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

Post by DoTheMath » Thu Oct 24, 2019 5:20 am

I haven't read through the entire thread, so I'll echo what others are surely saying: you should definitely get expert advice. I have no doubt CA has lots of experience finding ways to get their pound of flesh from Silicon Valley folks who try similar maneuvers.

My other suggestion is to look into Puerto Rico. If you're looking to establish residency somewhere else, then PR looks even better than a no-income tax US state.
“I am losing precious days. I am degenerating into a machine for making money. I am learning nothing in this trivial world of men. I must break away and get out into the mountains...” -- John Muir

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

Post by billthecat » Thu Oct 24, 2019 11:33 am

DoTheMath wrote:
Thu Oct 24, 2019 5:20 am
I haven't read through the entire thread, so I'll echo what others are surely saying: you should definitely get expert advice. I have no doubt CA has lots of experience finding ways to get their pound of flesh from Silicon Valley folks who try similar maneuvers.

My other suggestion is to look into Puerto Rico. If you're looking to establish residency somewhere else, then PR looks even better than a no-income tax US state.
Meh. I could be wrong but AFAIK PR benefits only apply to income earned, and capital gains on assets acquired, while a resident of PR. So it doesn't apply to his shares, which he already has, or interest or dividends. PR makes the most sense for business owners earning most of the income outside the US.
We cannot direct the winds but we can adjust our sails.

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

Post by DoTheMath » Sat Oct 26, 2019 4:05 pm

billthecat wrote:
Thu Oct 24, 2019 11:33 am
DoTheMath wrote:
Thu Oct 24, 2019 5:20 am
I haven't read through the entire thread, so I'll echo what others are surely saying: you should definitely get expert advice. I have no doubt CA has lots of experience finding ways to get their pound of flesh from Silicon Valley folks who try similar maneuvers.

My other suggestion is to look into Puerto Rico. If you're looking to establish residency somewhere else, then PR looks even better than a no-income tax US state.
Meh. I could be wrong but AFAIK PR benefits only apply to income earned, and capital gains on assets acquired, while a resident of PR. So it doesn't apply to his shares, which he already has, or interest or dividends. PR makes the most sense for business owners earning most of the income outside the US.
Could be. I haven't looked into it myself, I just know they are very favorable tax-wise for people in certain circumstances.
“I am losing precious days. I am degenerating into a machine for making money. I am learning nothing in this trivial world of men. I must break away and get out into the mountains...” -- John Muir

inbox788
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Re: Advice: Windfall Makes Working Worse Than Not Working

Post by inbox788 » Sat Oct 26, 2019 7:52 pm

Came across this excellent list of options, but not a fan of most of them (complex, risky, expensive), but it all depends on your particular situation.

Most immediate, consider an Option Collar is a risk mitigating temporary measure while you figure a longer term solution.
Option Collar - Good short term solution if you are trying to hang onto a stock for the next tax year, or similar strategy. Not a long term solution IMO. You've got tax implications if the hedge works (ie gain on put value). Not ideal.
viewtopic.php?f=1&t=292695&start=100#p4803424

PowderDay9
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Re: Advice: Windfall Makes Working Worse Than Not Working

Post by PowderDay9 » Sat Oct 26, 2019 8:02 pm

Another vote for moving to a tax free state for a few years. I would hire a tax attorney to make sure you do everything right so California can't come after you for the taxes. FIRE for a few years and go back to work later if you'd like since it sounds like finding jobs won't be difficult.

California coming after people who leave and being "grabby" would make me think twice about moving there in the first place! I've heard stories about New York doing that as well. Makes me thankful to live in a tax free state!

EFF_fan81
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Re: Advice: Windfall Makes Working Worse Than Not Working

Post by EFF_fan81 » Sun Oct 27, 2019 10:57 am

My advice:

You will be wealthy either way. You know the costs and benefits from reading these posts and thinking yourselves. What do you WANT to do?

I notice you referred to your jobs as "highly stressful" many times and said that the taxes are "demotivating." Stress kills and IMO there is no obligation to continue working just for the sake of working. So, based on my read of your posts, I would say that in your hearts you want to move and take a break.

I would cut all ties with California, move to a cheap apartment in a low tax state and travel A LOT for one year. Then, work if you want or don't if you don't. You'll know better how you feel then.

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