Mindy: Today’s episode is very timely. With major private companies like SpaceX going public this week and more employees finding themselves with significant wealth tied up in company stock, we’re tackling one of the biggest financial decisions many people will ever face. What do you do when years of stock compensation suddenly turns into real liquid money?
Mindy: Hello, hello, hello and welcome to the BiggerPockets Money podcast. My name is Mindy Jensen and with me as always is my doesn’t currently hold any SpaceX stock co-host Scott Trench.
Scott: Thanks, Mindy. Um yeah, great to be here and I don’t have any of these options that we’re going to be talking about today. But looking forward to helping out those who do. Um, before we get into today’s episode, BiggerPockets Money has a paid referral relationship with Equity for the Win or Equity FTW, the firm featured in today’s conversation. We will receive compensation when listeners book a meeting with them. This creates a financial incentive for us to have them on the show and partner with them, which you should consider when evaluating what you hear today. So, full disclosure of the arrangement is in the show notes over at biggerpocketsmoney.com.
Scott: Today we’re joined by CJ Stermitz and Toby Johnston from Equity for the Win, a flat fee financial planning firm that specializes in equity compensation of the types that we’re going to be talking about today, concentrated equity positions, for example. Together, they’ve they’ve helped countless employees navigate the opportunities and challenges that come with concentrated stock positions and sudden wealth. So, they’re the perfect people to have on to discuss the topic today and we’re excited about a partnership that we’re uh entering into with Equity for the Win as we we just mentioned. As a reminder, this episode, as always, is not investment advice and is for entertainment purposes only. CJ and Toby, welcome to the BiggerPockets Money podcast.
Guest 1: Yeah, thanks, Scott. Thanks, Mindy.
Guest 2: Thank you.
Scott: So can you give us a quick overview of what you guys do and your background and why we should listen to you about uh equity compensation and and the intricacies of that?
Guest 1: I guess I can go first. So I’m CJ Stermitz. I am the founder of Equity for the Win or Equity FTW. I’m a certified financial planner and certified equity professional. I’ve lived in Silicon Valley for almost 10 years and have been advising people in tech basically that entire time. Living in Silicon Valley, basically every employee out here receives some form of equity compensation. And I don’t know, live here long enough, you’ll see a lot of things and learn a lot. I also, I really enjoy teaching and writing about equity compensation topics. So I mean, some background on the firm is we actually started as just an educational website because I felt like there’s a big gap between what really high level executives knew about equity compensation and what regular employees knew. And so I just kind of wrote articles for quite some time and then over a while, I realized that there’s a huge need for good financial planners and tax planners to educate people and help people make better decisions with equity compensation. So, I don’t know, we’ve been doing it a long time. If you read our content, you can kind of get a sense that we know what we’re talking about, but I don’t know, you can see for yourself, hopefully.
Guest 2: And Toby? Yeah, well, first, thanks, Scott and Mindy for having us on the show. We’re we’re excited to be here. And yeah, like CJ said, Equity FTW is an advice only firm and that’s one of the main reasons why I’m supporting it. CJ’s the face of the firm. I’m actually retired. Um retired a couple years ago from a larger firm but spent over 20 years of my career in Silicon Valley focused exclusively in this area. And so while I don’t meet with clients anymore, I’m a big supporter of CJ and really a kind of a true believer in this advice only model. Um like CJ said, there’s just so many people that need good advice that may not have a lot of liquid AUM for a traditional firm to manage and so they tend to get overlooked and don’t get the best advice. And so that’s what we’re here to change.
Scott: Awesome. Well, I’m super excited about today. You know, I I think that the goal for today’s show is to to frame the problem, right? This is a good problem that uh you you have if you’re listening to today’s show. This is I’ve come into sudden wealth. I have hundreds of thousands, probably or millions, maybe even more than that, in a concentrated equity position in company stock. That could be via stock options, it could be in ownership that has vested. It could be in other types of equity or equity like instruments, or it could just be a concentrated position that you invested in from a private equity firm that’s now that’s now going to go public uh to some degree. And so the goal I think that we’re framing this with is my goal is I have this wonderful win and now I want to move from this concentrated position to a different portfolio or I want to realize the liquidity and spend it on something or use it for some life purpose or give it away. And I want to do that tax efficiently without stepping on any landmines. And so that’s the framing of this. And in that context, can we maybe introduce the kinds of events, what I should do in in the years or months leading up to the liquidity events for these?
Guest 2: Yeah, I really like the way that you you frame that, Scott. And so I’m going to do a little framing myself here which will hopefully serve us well during this discussion. But I’d say in answer to your question specifically, you want to first get organized and then you want to get a plan. So a little bit more color on the get organized. Getting organized in this context means knowing exactly what you own. So like you mentioned, there’s all different types of equity, you know, there’s stock options, within those, there’s non-qualified stock options, incentive stock options, there’s ESPP, there’s RSUs, there’s founder shares. There’s probably other stuff that I’m not mentioning, right?
Guest 1: Yeah, performance share units and…
Guest 2: Yeah, performance share units which is something that you know, SpaceX has. So what exactly do you own, when did you acquire it, you know, what is your tax cost basis? When did you start your holding period? A bunch of things and we’ll get into more of details about this organized principle, but you got to know what you have before you can do anything else. And then you need to get a plan. and I’m going to propose three layers to this plan. So the first layer is the big picture. you know, some people will call it a financial plan, but it’s basically, you know, what do you have in your financial life? What are your short, intermediate and long-term financial goals? That’s the kind of the outer layer of planning. The next layer I’m going to call a diversification planning. So, you know, you mentioned, how are you going to get liquid, how quickly, what are you going to use the money for, etc. So that diversification plan. And then the inner layer, which a lot of people mistakenly go with first, is the tax planning. So how are you going to get diversified in a tax efficient way? So get organized and then get a plan.
Guest 1: Toby shared a really good analogy. I I mean, I don’t know, Scott, do you wear glasses?
Scott: I do, yes.
Guest 1: Okay, so Mindy, are your glasses actually working glasses or they uh just for a looks only?
Mindy: No, I see shapes if I don’t have my glasses on.
Guest 1: Toby had a pretty good analogy of like…
Guest 2: You can share the analogy better than I can, Toby. Well, so the analogy is, there’s a lot of different ways to come at this topic of concentrated stock position, equity comp, right? And so just like when you go to the optometrist, you know, you’re sitting in the little chair and they’re doing the, you know, is it A or is it B? Is it one or is it two? And things are getting more and more clear. So in this context, you have several different lenses that you can look through. And so that first lens is the planning lens that I just hit on, which is the, you know, big picture and the diversification and the the tax plan. The other kind of set of lenses, so let’s say that first one is your left eye. The right eye now to really bring things into clarity into true focus is how big is the company that you’re at? So are you early stage? Are you about to go public? Are you a mature public company? Because the answer to that final set of questions really impacts the tools that are available to you, the strategies that you can use to plan. And when you overlay both of those, that’s when you really get a true, clear picture of what you should do going forward.
Scott: Let’s talk about what what the liquidity opportunities look like because we we know you have a different a bunch of types of options or equity that we can we can get into and different tax treatment. But in these cases are employees able to liquidate over time or do they have one offs or what’s what are the opportunities and how does that change the the way we approach the strategy here?
Guest 1: There’s a sliding scale of liquidity availability based on the size of the company we’re talking about. So early stage startup, if you’re there, basically there’s going to be zero liquidity because it’s a very new startup. They aren’t going to let you sell any equity that they’re just barely granting you. But over time as companies grow, the scale of liquidity availability increases. So, I mean, we’re all familiar with SpaceX, so they’re planning to IPO. but there are a lot of other companies who even along their path to IPO, they’re offering one-off situations, which are often known as tender offers, where employees and shareholders are able to sell company stock. They’re also sometimes companies will allow employees to sell shares on secondary markets. It’s kind of strange to get used to, but there are marketplaces. So that I mean, I don’t know if we’re allowed to specifically name the companies on the podcast, but there are some, the big ones are Hive. So Hive even has a little secondary market that shows if you’re at a private company that’s not publicly available, it shows what people are paying for the company’s stock. Same thing with like Forge Global and Equity Zen. We don’t see a ton of our our clients using those marketplaces, but it does happen from time to time.
Guest 2: The secondary markets are basically if you’re on the selling end, it’s kind of like a last resort because it’s it’s basically the equivalent of a hard money loan in the real estate world, the company equity, just because there’s so much there’s layers of fees that get assessed. And so you’re not getting a true fair market value for whatever you’re selling.
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Scott: Okay, so I’m going to have liquidity events that’s going to be a sliding scale. Much rarer uh in private companies that are small, much uh greater at at public companies and the size of the private company moves along there. So that that makes sense to me. You mentioned like 40 different types of equity. I think it was eight, 10 different types of equity. Can you help us bucket those in ways that we can understand from a tax treatment perspective? How should I be thinking about this in terms of groupings about what kind of taxes I should expect when I when when a liquidity event comes?
Guest 2: I’ll take a first crack at that and then and CJ you can talk about the the tax treatment for the different types of equity. But the life cycle of of these types of companies in terms of the equity, you usually start off, obviously, you start off with founder shares, then the early employees normally receive incentive stock options. Those are limited in in how much you can receive in a given grant that will vest in a given year. So fairly quickly, the company will move on to non-qualified stock options, and then ultimately end up issuing restricted stock units as they get more mature and closer to IPO. So CJ, how are those taxed?
Guest 1: Founder shares essentially, if if you do it right, someday they will all be treated as I’m assuming your listeners know the different types of tax rates that people can be taxed at.
Scott: I think that that’s fair. Well, since you mentioned it, right? We have ordinary income and an equivalent and we have long-term capital gains and qualified dividends on equivalence. And those are the two broad categories and we want to move as much as possible into the long-term capital gains bucket if we can.
Guest 1: Yeah, exactly. So typically ordinary rates will be higher than long-term capital gains rates. So the the game is trying to get your equity to count for as much long-term capital gains as you can. But yeah, so founder shares, basically if you do it right, everything can be treated as long-term capital gains. Those are kind of easy. So after founder shares, let’s go the other direction. So let’s start with most common. So RSUs are by far the most common form of equity compensation that people receive. It’s what, if you’re a public company, you’re probably granting your employees restricted stock units and they’re everywhere. Basically every company. And so RSUs of a public company are taxed once they vest. They’re taxed at your ordinary rates, they get treated as ordinary income. There’s some interesting planning scenarios where companies are required to set aside a withholding once they vest. And so that withholding often times doesn’t actually cover the taxes owed for the employee receiving the RSUs. So the statutory rate on RSUs when they vest at the federal level is 22% up to 1 million and then above 1 million, it’s 37%. So basically, if you’re in the 24, 32 or 35% tax bracket, it creates a little bit of an under withholding as they vest. So that’s always a planning opportunity. Now, there’s a difference too between RSUs of a public company and a private company. So at a private company, usually once they start issuing RSUs, it’s a sign that they’re more mature of a company and potentially targeting an IPO at some point in the future. RSUs of private companies can be either what’s called a double trigger RSU or just still a regular plain RSU that’s taxable at vest. So these bigger tech companies that are approaching IPO, like some good examples, I don’t know if Stripe will ever IPO, we’ll see, but Stripe for example issues RSUs. And when they vest, even though the company is private, they are still taxable. Other tech companies that are private when you have RSUs, often times when they vest, it won’t actually create a taxable event because there’s a second trigger on them that says you have to basically, in order for the taxable event to occur, there has to be a liquidity event. Typically in the form of either a tender offer or an IPO. And then at that time, you meet the time requirement for the RSUs to vest and then once the liquidity event happens, then all those double trigger RSUs are released and the taxation happens. Makes sense so far?
Mindy: Yeah, so your RSUs of your non-public company could be long-term capital gains for you.
Guest 1: No.
Mindy: No, they can’t.
Guest 1: So basically they sit in kind of limbo mode. So if if I’m at, you know, XYZ company that’s not publicly traded, Mindy, you give me a thousand RSUs. I stick around for the company for a year and I get to have them meet one of the requirements. Basically, I work for a year, they vest and then after that, they just often times will hang out kind of in this limbo mode until there’s a liquidity event. And then at the time of the liquidity event, that’s when they become taxable.
Mindy: But it’s a short-term gain.
Guest 1: It’s treated as just plain old income.
Mindy: Oh, it’s ordinary income.
Guest 2: Yeah, it’s just like it’s just like part of your salary basically like you got a bonus. And so that’s when your holding period starts. So with a grant of RSUs, nothing happens to you tax-wise, you don’t own anything yet until those RSUs vest and fully vest, that’s when the taxation occurs and that is day one of your holding period. So if you were to sell on day two, you have a very small short-term capital gain or loss. If you were to sell more than a year later, you have a long-term capital gain or loss. And that’s why with RSUs, and I’m sure this may come up again later, our standard advice is when they vest, sell them. So companies sometimes will give you the option to, you know, have your RSUs vest, withhold shares, and then they’ll deliver to you the net shares. So let’s say 100, you know, you vest $100, they withhold $40 and they deliver to you the equivalent of, you know, 60 shares in this example. You can hold those, but you’ve already fully paid tax on them. If you don’t sell those right away, it’s like you got a bonus of $100 in this company bonus, they took taxes out and you took the leftover 60 and bought all company stock. And so when you pose it like that, most people will say, “Oh, well, if I got a bonus of $100 and they took out 40, I’d want some of that or all of it, you know? And then I’ll decide according to my overall investment plan if I want to buy $60 of my company.”
Scott: I think that’s a wonderful framework. We’ve talked about founder shares and we’ve talked about RSUs. What is the next most common type of employee compensation that’s equity-like?
Guest 1: Yeah. Options, both ISOs or incentive stock options and NSOs, non-qualified stock options. I think in order of what’s easiest to understand is probably non-qualified stock options. So options by nature are what are considered appreciation awards. So in order for you to get any value from an option, there has to be appreciation in the stock price. So the way it works is when an option is granted to you, say it’s granted at 10 bucks. If the company never grows and the share value never increases, you can’t ever have any gain within your option because you can pay 10 bucks for a share that is worth $10, therefore there’s no value unless there’s some appreciation. As a company grows and as the share price grows, say your option goes from $10 to $15. The difference between the value of $15 and $10 is known as a couple different things. It’s known as the bargain element or more commonly known as the spread. So that $5 kind of embedded, similar to a stock, it’s like a gain but for an option. And so that gain when you exercise will have different ramifications if it’s a non-qualified stock option or an incentive stock option.
Scott: So how do I know which one I have and what I ought to do to as much as possible move it into the long-term capital gains bucket.
Guest 1: This is where the planning gets fun. So the non-qualified stock option, that spread is if you were to exercise is treated as taxable income. And so if you exercise, say you’re at a private company and you exercise a non-qualified stock option that has a $5 embedded gain or spread, you would then owe taxes immediately on that $5 spread.
Guest 2: I’ll explain a little bit about how that works. So that’s considered compensation. So similar to the RSU example, that $5 spread is, it’s basically like getting a company bonus. It gets a little tricky depending on if the company is private or public because there are withholdings that are required on that $5 spread in this example. Your normal federal, state, FICA, Medicare, etc. So if it’s a private company, usually, well hopefully for the employee’s sake, there’s a provision that will allow the company to withhold shares to satisfy those withholding taxes that need to be remitted to the government. If there’s not that provision or if the company isn’t flexible, doesn’t allow that, then the employee actually has to write a check to the company. So we’re working off this example of a $10 strike price that’s now worth 15. That creates the $5 spread. So if the company won’t withhold shares to cover my taxes, I have to write a check for both the $10 and the taxes on the $5. And so that can get really expensive really fast. And so that’s why you don’t really see a lot of people exercising non-qualified options in private companies unless it’s early stage and the strike price is really low. Like if we’re talking about 10 cents in a 15 cent value with a 5 cent spread, you’re much more likely to exercise something like that as a private company than you would the $10, $15 example we’ve been working off of. With a public company, pretty straightforward, shares are sold and money is remitted to satisfy the withholding, so you don’t have to come out of pocket then. Does that make sense?
Scott: In practice, how often do you find people coming out of pocket and having the need to come up with cash in order to buy their shares or exercise their option?
Guest 1: For NSOs, a lot of the times what ends up happening is an employee is granted NSOs really early on when they have no faith in the company. So it’s like, you know, they get a bunch of NSOs and then they’re like, “Okay, yeah, this is cool. Like maybe this will be worth something someday. I don’t want to put any money into this.” Now depending on how much money you have and like what your means are to exercise and take risks super early on, like, you know, whatever. But what happens most often is nobody has any faith in the company or very little faith and doesn’t want to put money in. And then the company actually does something and becomes worth a bunch of money. And so now it’s not necessarily the exercise price that is expensive, it’s the tax. And so most commonly, if you have NSOs of a private company, people just kind of kick the can down the road until they’re able to both exercise and sell simultaneously.
Guest 2: Totally agree with what CJ is saying there. There is also though a best practice for an early stage company that allows you to early exercise your options. So we’ve been talking about a case where there’s a spread between the option value, the strike price and the current fair market value of the company. But when those options are granted to you, there is no spread. By law, the company only grants you, you know, options with zero spread. So if you were to exercise as soon as they’re granted before the value goes up, before the next 409A, which is how private company shares are valued, then there is no spread. And so there’s no taxation, there’s no compensation element there. So then it just becomes, can I afford this strike price and is this an investment that I want to make?
Scott: And what is the advantage of doing that? Does that change my tax treatment on the other side?
Guest 2: So that drastically changes it in that it starts your holding period. And so now you only have to, if we’re talking about non-qualified options still, now you only have to wait a year and then if you sell those underlying shares, you got long-term capital gain treatment. Even, you know, I don’t know if we save this till the end, but you mentioned there’s the ordinary income tax treatment, there’s long-term capital gain treatment, there’s short-term capital gain treatment, there’s also zero tax treatment, right? And that’s qualified small business stock. So that only applies to shares that you may have purchased early stage when the company meets the requirements of a small business. But if you’re able to check those boxes for this, it’s called Section 1202 qualified small business stock, and there’s a few boxes that you got to check, you know, three to five year holding period, etc, etc, then your gain up to $10 million is tax free, federal, and California, they’ll still tax you on that, but in most other states, you won’t get taxed at all. So the nirvana, the best practice is early stage, early exercise, buy your options, sell tax free down the road.
Scott: Do you commonly give advice to move out of California?
Guest 1: How often do you give advice to move out of California, Toby? Well, you’re not in California anymore, so…
Guest 2: So I’m in Utah. I’m enjoying a 4 point, it seems like it gets lowered like every other year, but it’s like 4.4% here or something. instead of 13.3. Residency planning is definitely part of all of this. And you know, when we talk about what moves can you make, you know, shortly before your company goes public, that is definitely one of the moves to consider if your position is one that can be uh done remotely or if the company has offices in a lower tax jurisdiction. Usually you’re not going to move just to save on taxes, but it’s fairly common though for lifestyle and tax planning to align and uh yeah, you can change your residency and save tons of taxes.
Mindy: So if I’m living in California, working in California because I’m working for one of these tech companies and then here comes my liquidity event, if I’m not going to sell right away, I still have those shares. I can move to another state and then I’m not paying California taxes on those because I’m no longer a resident of California even though I got the stocks when I was a resident and an employee in California.
Scott: California’s wise to this game by the way. You can’t like move back right afterwards. They’re gonna they’re gonna get you.
Guest 2: As in all things tax and planning, it’s a little more complicated than that, but basically yes. The kind of tax that you will be able to avoid is the long-term capital gain tax.
Guest 1: Which California doesn’t have preferential treatment of by the way. So in California, a long-term capital gain is it’s no different than the salary you earn from a company.
Guest 2: Short-term, long-term gain, income is income in California, the great Golden State of California. But across the country, investment income, which capital gains are considered investment income, portfolio income if you want to nerd out on taxes, that is sourced to your state of residency. The kind of income where California, New York, other states will reach out their hand and gather those taxes back in even if you move, is on your RSUs in your compensation element of your option exercises. So for example, if you have a ton of RSUs and the company that goes public and they continue to vest and you move from, let’s say California to Nevada, what they’re going to do is as that vest occurs, instead of saying, “Oh, source all of that income to Nevada, which is tax-free,” they’re going to source part of it to California and part of it to Nevada based on where you were living, working over the course of the vesting period. So by moving with RSUs, you do stop the bleeding, but you don’t get rid of the the tax that you’ve already basically obligated yourself while you were in California.
Scott: I’m going to hijack us for a second here because I just nerded out yesterday actually and built this like income tax projection tool, vibe coded, of course, you know, we show all the the deductions, all the different types of tax treatment, go through the federal stack, go through the state stack if it applies, all that kind of stuff. Just to give you an idea here. This is a 194,000 household here. If we give him a $500,000 capital gain in Alaska, their tax bill in this situation is going to be 126k versus California, it’s going to be 182,000, right? So that I mean this is a huge deal, $50,000 on this $500,000 gain in this in this scenario. But you can kind of play around with that and see, hey, in DC it’s going to be very expensive in Colorado, it’ll be somewhere in the middle because we have a flat tax. This could be a big deal if these numbers start to get very, very large with SpaceX and thropic.
Guest 1: Add another zero on there and you’ll see how big it deal it is.
Scott: Yeah, I mean you do five million, you do 10 million. I mean, this is, it’s very consequential planning.
Guest 2: The highest tax rates in California don’t even kick in until after a million.
Scott: Yep, so this now we’re going through the whole California stack here for this particular game. This is a tool available at biggerpocketsmoney.com/income tax project projection. You can find it in the uh resource section here and play around with that. Um anyways, I thought that would be fun. I tried to build like an option stock option modeler and this is as far as I got because it’s so then you have like 40 like like Toby mentioned, 40 different types of options and how they’re treated with their basis. And that was too complex for me to vibe code.
Guest 2: Well, we haven’t gotten to the funnest one. CJ, CJ’s going to tell us about incentive stock options.
Guest 1: One correction on the QBS thing is I think right now, now it’s 15 million of excluded gains, I believe.
Guest 2: 10 to 15 million, depending on when you acquired the stock. If you acquired it after July 4th, 2025, then your holding period is three to five years and your excludable gain is 10 to 15 million. So venture capitalists in Silicon Valley have known about qualified small business stock for a long time, but the wider, you know, tax world has just learned about it in the last several years.
Scott: So happiness in America is starting a small business, scaling it to 3 to four million in EBIDA and selling it for 30 million bucks, you know, 15, 30 million bucks depending on if it’s you and a partner. Is that right?
Guest 2: That’s right. And the the 10 to 15 million, so we won’t won’t get too far in. this is a whole another episode, Scott.
Guest 1: This part of the planning Toby just loves, yeah.
Guest 2: That’s the first bite of the apple. and you can actually 10x that if you do other more advanced planning and you can use family trusts and all kinds of gifting and whatnot. So this is a gift that keeps on giving to uh uh venture capitalist uh lobbyist uh forever.
Scott: All right, so what what’s the last type of option here that we have is…
Guest 1: So the the other option, sometimes more complicated, but also can be really beneficial and is kind of a nice in-between of you don’t have to do anything right at grant and you can kind of wait and see what happens are incentive stock options or ISOs. So what’s unique about ISOs is after grant and there’s been appreciation. So let’s keep rolling with the $10 grant price and exercise price and then it becomes worth $15. When you exercise ISOs, that spread, it isn’t treated as ordinary income. Rather, there’s a separate calculation that happens on the AMT side or alternative minimum tax side of your tax calculations for a given year. Depending on the level of ISO grant you’ve received, you can exercise a lot of ISOs or some ISOs without incurring any tax and all you’re paying is the exercise price. The exercise price of $10 per share, that’s still money that you have to put into the company. So it’s a little bit of a risk, but a lot of the times like SpaceX, for example, there are people who received ISOs of SpaceX back when it was worth a dollar or you know, 97 cents or something. They’re paying, you know, pennies on the dollar, but if they’re exercising at a point when, well I guess SpaceX today just announced after the split, say their exercise price is like 50 cents and the stock price is now worth $135. That’s a huge embedded spread on an incentive stock option.
Scott: These coastal companies, you know, they don’t like to make any money, so they raise more and more money and burn it and then grow revenue and there’s no there’s no cash flow uh ever. But you know, here here in Colorado, we like to actually drive EBIDA or or or cash flow from businesses. My question in relation to ISOs is if a company that I work for does not make any cash, there’s no real urgency to exercise that option. although it could be good or bad, but I have that option really whenever. But if my company is generating a lot of cash, don’t I want to convert that into equity in the company relatively early even if I can’t get a liquidity event because then I’ll participate in the cash generation of the business if it is in fact cash flowing.
Guest 2: Your question is more in the context of a closely held business where the shareholders it’s also probably a flow through entity like a partnership or an S corporation. And so that’s not the stock option world that we’re talking about. What you’re saying definitely, you know, potentially makes sense in that closely held context.
Guest 1: Really with incentive stock options, it’s similar, it’s going back to the appreciation award. And so with an incentive stock option, you potentially can have less risk compared to an NSO because the tax treatment might be better early and then after exercise potentially everything can be treated as long-term capital gain if you hold it for the requisite time period.
Guest 2: Yeah, so just to contrast those, so you have your non-qualified stock option, when you exercise that with a spread, the spread becomes compensation to you. You have your incentive stock option, the incentive piece is that when you exercise, there’s no compensation element and when you sell, you get long-term capital gains with no compensation element if you hold two years from grant, one year from date of exercise. So there’s some holding periods that CJ was referencing there.
Scott: Got it. Are these the most common types? We have founder shares, stock options, incentive stock options and non-qualified stock options. We’ve got RSUs and what was the last one that we mentioned here?
Guest 1: Well, stock options falls under two, so ISOs and NSOs. The other big one that’s common amongst public companies are ESPP shares, so employee stock purchase plans. I can’t remember the percentage, but it’s well over half of tech companies offer an employee stock purchase plan. Amazon doesn’t, Google doesn’t, but there are a lot of other tech companies that do and it can be a pretty nice benefit for employees.
Guest 2: It’s basically, think of an ESPP as the company essentially offers you a discount to buy their own stock as much as 20% and then if you hold it, then you can get long-term capital gains on that as well. You know, it’s like when the company offers a 401k match, you want to take advantage of that at least up to the match. An ESPP plan can be thought of similarly but with company stock. You want to subscribe to get the company discount because even if you sell it the next day, you’re still benefiting from that, you know, up to 20% discount.
Scott: I can’t get enough people to do this thing. I mean, I get that there’s some situations where there’s like rules or lockups or whatever that create risk for the person, but like if you have the ability to just buy company stock and sell it the next day at a 15% discount, it’s just like, it’s free money. It’s like a raise.
Guest 1: If you’re at a company that offers ESPP, it should be part of your cash flow waterfall, whatever you call it.
Scott: Priority list. Order of operations. Yeah.
Guest 1: One one clarification with ESPP, there are bad ESPPs. I think I sent you a note on like, I mean, I don’t want to call them out specifically, but you know, Dollar Tree for example, they have a one year holding period requirement after purchase on ESPP shares. I mean, then it’s like, I don’t know if this is worth it because you don’t know how a particular stock is going to do. So then it’s a lot more nuanced of a decision. But if you’re able to turn around and sell an ESPP purchase right away, I mean, yeah, that’s basically free money.
Scott: Let’s go to the crux of the problem here, right? I have one of these types of options here, regardless of whether it’s a long-term capital gain or ordinary income, I just want to I I I don’t want to screw that up or create a situation. I want to be aware of what I need to do to to move it to long-term capital gain. But um I’m going to be in the the high income earning bracket, maybe for the first time in my life in this situation, right? I’m, you know, I I actually read a stat, fun fact, 12% of Americans have been in the top 1% of income earners. People think of like the top 1% is like this class right of people. and there are certainly people that stay in there, but it’s really rare to stay in there for a decade or more. Many people move in there one time or a handful of times in their life and move back out over that. So I’m going to be in this high income tax bracket and that’s going to create problems. It seems to me that I would want to move this across several years to some extent to be aware of what those advantages are, even though that may keep me concentrated in this stock to some degree. I’d be curious your perspective on that. What what are the tax consequences that hit a typical tech worker, not the executive making tens of millions, but the typical tech worker is making hundreds of thousands to maybe a few million in one of these these liquidity events. How should they think about it or handle it from a tax planning perspective?
Guest 2: Yeah, so I I can get us started on that. So, you know, going back to the three layers of planning, if you don’t have that plan in place, it can be really tempting to sort of let the tax tail wag the dog. Whenever you’re trying to get enhanced tax benefits, you’re taking on some risk. and in this case, we’re talking about company stock. you know, a lot of these companies are in the tech world. They tend to be more volatile than, you know, your Proctor and Gamble, etc. So you really need to factor into your planning just the stock risk, risk of the stock price going down. Because I’ve seen all kinds of awesome tax planning which requires usually holding longer, get erased in the matter of hours in the markets, especially with these sorts of companies. So that’s number one. So start with that big picture first and and see how much money do I need to walk away from the company with.
Scott: I think that brings up like a more emotional question. Maybe CJ allows I’ll ask you this one, right? We talked to somebody the other day that emailed us Mindy and I and and basically the FOMO of moving on from the company stock was was a big issue there. You know, I get that there’s a textbook answer that you’re going to give in this, but I think that’s a real problem for folks, right? I I I joined this company, I’m at SpaceX, it was a dollar, now it’s going to IPO for several trillion. What if it goes to 20 trillion and we go to Mars? You know, I I think that that’s a that’s a real challenge people have with it. And there’s a probability that it works. And and how do I think about it?
Guest 1: This may be a terrible analogy. I shared it with uh Jason and Brian Tate, the other people who we have working at Equity FTW. But for SpaceX, a lot of times I think about concentrated stock positions literally like a rocket ship. So you know how rocket ships have to have like boosters to get into orbit? I mean, in the case of SpaceX, SpaceX is literally the booster getting you to where you want to go. and then eventually you have to ditch the boosters. You may not have to ditch all of them. I mean, I guess I don’t know much about uh I guess space travel and putting things into orbit, but in terms of kind of letting go of the things that get you where you need to go ultimately. I think that goes back to the bigger picture thing that Toby’s talking about is eventually you have to let go as hard as it might be. it never feels good to sell any company stock. whether it’s SpaceX, whether it’s Nvidia, Apple, Apple employees will regularly say, you know, my biggest regret is selling Apple. you know, it’s like, of course, but at the same time, you have to think about the bigger picture of what Apple has afforded you to do in your life and how you use proceeds from Apple sales or whatever stock sale. I don’t know what you think about my analogy, Toby. I don’t know if you’ve ever heard that.
Guest 2: I think it’s good. I mean the reality is that this this area of personal finance it’s more emotional than any because it’s, you know, these people have they’ve literally been putting in 40 to 80 hour weeks for years upon years, right? This is their baby. And so they are very emotional. I mean, they, you know, HODL didn’t exist when the last tech bubble burst, but there was plenty of people hoding on to their Cisco and their Juniper and whatever stocks that just absolutely cratered, right? And so if you’ve already met your financial goals because you’ve been systematically selling tax efficient manner, then if something does go down, then it’s much much more palatable. You know, people sometimes ask like what’s the biggest mistake that you could make, you know, for someone in this situation. and I kind of have two answers to that. I think the biggest mistake is waiting too long to sell stock while you ride the price down to irrelevancy. That’s on one hand. The other hand is selling everything you can day one while the stock really takes off, right? Generally speaking, when I was working and giving advice, I would try to avoid both of those scenarios and create a systematic plan that removes the emotion that’s based in that big picture financial.
Mindy: Yeah, that I think is the crux of this is I believe in the viability of the company that I am working at. I think they’re going to do great. I don’t want to sell because I’m going to miss out on all of that exponential growth. By the way, CJ, I really like that booster comment that actually put it into perspective for me because I do have this stock that it has taken me far, but it’s also a really large portion of my portfolio. I am old enough to remember Enron and I know Scott doesn’t love this example, but Enron went to zero. It didn’t just go down. It’s worth, I think it’s currently worth nothing, right? Like it’s it’s gone. It’s not even on the stock market anymore. And there were a lot of employees at Enron who were married to employees at Enron who had their entire portfolio in Enron stock because it was doing so well. So that always lives in the back of my mind. Tech companies come and go, they were great and now they’re nothing or they were great and now they’re a dollar and it’s hard to sell because you think it’s going to go up but you don’t want to hold it because you think it might go down.
Guest 2: You definitely get a skewed perception when you’re inside the company, you’re seeing insider information all the time and you’re thinking, “Hey, this is great. This is never going down.” but the reality is that it does and it may be someone starts a war, you know, nothing to do with your company.
Scott: I think that brings us to like what what ought you to do in in I I prepared a hypothesis for today for like what I think might be an acceptable answer to someone in this situation that I’d love to run by you and get your feedback and nitpicks and edge cases where it breaks down. My assumption here is that employee has a taxable gain. So this probably doesn’t apply to the SpaceX IPO because many of the SpaceX employees are going to have RSUs, when they vest or be, you know, those are going to be ordinary income. and so then they can sell all of all of that the remaining stock if they want to for no capital gain because they’ve paid tax on the ordinary income. But let’s say that I’m an employee that has some kind of taxable gain that I have the option to to liquidate or not, regardless of whether it’s it’s long-term or short-term. So first, I’m going to have an end state or target portfolio in mind. If I could wave a magic wand, convert my entire position to cash and redeploy it, what would that position look like? And for this example, I use a Boglehead portfolio. It would be a index fund or maybe like a small two or three fund portfolio. that’s pretty simple. I’d move towards that fund. That would be what I what I’d wave my magic wand to. Maybe I’m 10 or 25% in my employer stock if I really believe in it, but I’m moving the vast majority to this diversified diversified portfolio. So that’s one. One and a half, step one and a half would be how much do I want to give away as well? So I could, you know, if I want to charitably contribute something, then that factors into this. Step two is identify the type of stock I have and its tax basis and treatment and plan on that. Then I would project my income tax, which is why I built this vibe coded income tax projection model. and I’d say, “Hey, this is going to stack on top of the other things in my life. Like next year’s going to happen. I’m going to earn a salary. I’m going to have some kind of simple interest for my high yield savings account. I’m going to have some qualified dividends for my existing stock portfolio, those types of things. And then whatever I sell of this stock, ordinary or or capital gains based is going to stack on top of that. And that’s going to push me through various cliffs, which is step three, I got to identify these cliffs. And the big cliffs on the long-term capital gains side are going to be the 0% tax bracket, which is like $98,000 for a married couple. It’s surprisingly high. The 15% bracket, which goes up into the $613,000 for a married filing jointly couple. And then the 20% long-term capital gains tax bracket. In between, there’s the net investment income tax threshold, which is about 200 or $250,000 depending if you’re single or married filing jointly. And I don’t want to go beyond that unless it’s intentional. I don’t want to be surprised by that next year. Step four would be once I decided how far through these cliffs I want to go to, I will sell almost all the way up to that cliff because I might be wrong on something. I might get a little more interest than I was expecting or I might have forgot about that savings account. I’ll do it immediately to the that cliff and then I’ll true it up at the end of the year and then sell the next chunk early in the following calendar year up to that cliff. And maybe I’ll repeat this for one to three years, but I want to move fairly quickly towards my target portfolio. But I’ll repeat that over the course of one, one to several years depending on what my tax strategy is and the risk I’m willing to take in that concentrated position until I get to my target portfolio.” That’s my theory coming into it. I don’t know how how many of your clients come in with with theories that are as crazy as that. But I’d love your reaction to it and and uh whether I’m off base or if that’s something that your your company’s doing or if you have a much simpler approach that can throw out what I just said.
Guest 1: I mean, there’s a lot of good stuff there. I’ve seen crazier plans than that, that’s for sure. That seems like a pretty decent plan.
Scott: Well, I appreciate it, CJ. Thank you.
Guest 1: So SpaceX RSUs aren’t the double trigger variety. They have been getting taxed at just time vest. They they it’s not waiting for the future IPO to all become taxable. So when looking at SpaceX employees’ priority of sales, you know, RSUs actually will show a cost basis because taxes have already been assessed on what has vested.
Scott: Oh, okay. So you’re saying SpaceX employee has stock that is been that has vested. They’ve paid their ordinary income. They own that and there’s presumably another large capital gain between what they held and what is going to be available in the IPO. And that’s going to be either a short-term or a long-term capital gain depending on when their RSUs vested, and that will change the order of operations that I went through in my in my example. and I misstated that. Or I didn’t mis I didn’t misstate, but I I didn’t acknowledge that the RSUs um had vested and there might be another gain, which does not make it quite as easy as just sell everything because there’s no gain.
Guest 1: Yeah, exactly. But there but there are other, I mean, commonly at other private companies, it would be the RSUs just kind of sit around and then at IPO, they’re all taxable at vest.
Guest 2: I don’t consider after they’re vested, they’re just shares. They’re no longer RSUs.
Guest 1: That’s true. I guess that’s a important distinction. So after after you’ve received the shares from RSUs, they’re not really vested RSUs, they’re just shares of the company’s stock. I do want to check on one thing with, I don’t know if your vibe coded calculator, I haven’t haven’t checked the formulas on it, but I am curious with long-term capital gains, it’s important to understand how they work in conjunction with ordinary income. I’m sure you’re aware, but maybe this is news to some listeners that capital gains will float on top of whatever ordinary income you already have for the year. So say for example, you have a salary of 200k, assuming no deductions or whatever, you will immediately in the long-term capital gains tax bracket, rather than starting at zero, you’ll be plopped in right at 200k. So I think that’s how you have it.
Scott: I specifically engineered it to uh have the capital gains stack on top of the ordinary.
Guest 1: Yeah, so that’s great. And when we think about the planning, if that was step number three that you had in yours, that’s why that’s kind of an important step is projecting your income because some people mistakenly think that the first X amount of dollars of long-term capital gains is zero, but if you have other income, that’s not the case. And so, I mean, your calculator is helpful for that. One thing that I like to talk to clients about, when we try to determine your ideal portfolio, I don’t know if that’s the exact language you use, but that’s one bullet that is like, that itself is like a I mean, there needs to be a whole separate thing on how the heck do we determine your ideal portfolio. But that’s I guess our job. But in terms of how you start to figure out an ideal portfolio, the way I like to frame this kind of investment decision of what to do with a concentrated stock is there’s a difference between concentration and reliance. And I don’t know if I hear people talk about this a ton, but you can be extremely concentrated in a stock and not reliant upon it at all for your financial goals. I mean, a really extreme example would be, say I have 100 million of SpaceX, but I have $10 million of money outside of it. Depending on what your lifestyle might look like, you may not be risking anything by letting it ride on SpaceX. Now, if you contrast that to somebody who has, say they have 500k of SpaceX and a $500,000 net worth, they’re basically entirely reliant upon SpaceX. And so depending on the person, it’s really important to figure out just how reliant are you upon whatever individual stock that you might own. So that’s where it’s helpful to have a rough plan or rough projection. I mean, the fire crowd is really good at running early retirement projections. For people in the fire crowd, I like saying, “Okay, what do you look like without your concentrated position? How much do you need to extract from that position to make sure your fire plans are kind of shored up and are solid?”
Guest 2: I really like your plan, Scott. I mean, what I like about it the most is that you have a written plan. And so as the market volatility, you know, does its thing, you’re going to go back to your foundational plan and execute on that. The way I think about your your step three and we’ve talked about this throughout is you figure out in your earlier steps how much cash you want to generate for the year, which translates to this percentage of my portfolio that I want to sell, right? And then my my step three, the reality is that your portfolio is in a bunch of different buckets. So maybe you only have the RSU bucket and then it’s super simple. You’re just going to sell the RSUs that vest, right? Basically, after that vest happens, then those shares are essentially in your tax-free bucket. And so that’s where you’re going to pull from first. And then you’re going to look to your long-term capital gain bucket, right? The other thing, you know how this works, but your average listener out there when you say cliffs, sometimes people think of a cliff as if if they go over it, it’s like catastrophic, right? Really, it’s just the marginal dollar normally that is going to get taxed at the higher rate. So you got a written plan, you’re much better prepared to execute against that than if you’re just, you know, don’t have a plan, you’re talking to your co-workers in the cubicle next to you, watching the market every day, that’s where you can get into some real trouble.
Guest 1: Yeah. Do people have cubicles anymore?
Scott: Did we have we gone back to cubicles or are we still on like the open?
Guest 2: Are we back to them? I don’t know. Open architecture, then back to cubicles?
Guest 1: I used to have a cubicle way back in call center days during college, you know. That was fun.
Guest 2: So some people, Scott and Mindy, they’re actually forced to have a plan. It’s called a 10b5-1 plan. So if you’re considered a company insider, you know, there’s blackout windows, right? Which is basically nobody in the company is allowed to sell or do anything during these windows because we’ve all got material non-public information, I think it’s called, right? And some people, they’re sort of considered to be under suspicion like all the time, right? Because they always have access to something. And so they will be heavily encouraged by legal, uh, you know, general counsel normally for the company to implement a 10b5-1 plan, which is basically just a systematic plan of selling. So you just instruct your broker according to this documented plan, I want to sell my RSUs as they vest. In addition to that, I want to sell 1,000 shares, you know, on the first Monday of every month. It could be all kinds of random instructions in there. The point is that it’s recorded and so no one can accuse you of trading on uh non-public information because you’ve set this plan up and you put it in place and now it’s just happening. I encourage people to, you don’t have to get that strict about it, but kind of think of yourself in that way and implement your plan.
Mindy: Who’s the somebody that I’m talking to? Am I talking to a tax planner? Am I talking to a CPA? Am I talking to a financial planner?
Guest 1: We’re talking to CJ. Yeah, you’re welcome to obviously, you know, shameless plug, but yeah, I mean, we we help people figure out the financial planning, the tax planning. I mean, when you think about how to map out the most tax efficient shares for you to sell for any given IPO or any given public company, that’s a shared sheet that we usually have with our clients of this is the order of stock we need to sell through and this is what’s the most tax efficient. This is the tax per share that you’re going to be paying for each given type of equity you have. That’s just one piece of your plan, Scott. I mean, we have our own similar process, but yeah.
Guest 2: Whether you’re talking to one person or multiple people, multiple firms, multiple people within the same firm, you need to have all the skill sets represented. So I’m a CPA, I’m a certified financial planner. My clients when I was practicing, they love the fact that even though I could nerd out on taxes if I wanted, I always started with the big picture. Most clients, they want you to save them on taxes, but they don’t want to get down into the nitty gritty detail, right? They want someone that can explain it in practical terms that they can understand and grab on to. It needs to be an integrated approach whether that’s within the same firm or multiple firms. The challenge with multiple firms is just getting everybody to talk, getting all the professionals to communicate. I’m sure you guys have had the challenge of, you know, going to get your estate plan done and then like, well, how do you now they hand it to you and how do you implement that? So it’s nice to have multiple skill sets within one advisor or one firm that can keep everybody on the same page.
Scott: It’s really fun when you have like your CFP, your lawyer, your tax guy and you’re like, “Wow, this call is $1,400 an hour.” right now. We we just did it. We yeah, I don’t want to hear about your freaking weekend. Uh, this one. Sorry. Yeah, that that can that can always be fun. But it seems to me like you got to start with the end goal in mind and then think about the tax consequences and if the numbers get really big, then you’re layering in more team members, right? If you’re talking about $25 million situation, now all of a sudden we’re talking about estate planning too, because there’s a very good probability this estate is going to be way over the estate tax limit, right?
Guest 2: The lifetime exemption, yeah, we didn’t even, we didn’t even touch on that. We’re thinking that’s another episode or that’s another audience. But yeah, for all of the income tax planning that we talked about, there’s multiples of that for estate tax planning and wealth transfer if you’re in that boat.
Guest 1: When Toby was talking about the QBS multiplication, basically all of that is heavily tied with all that estate planning stuff.
Mindy: How do you know if a company that you’ve invested in qualifies for the QBS?
Guest 2: I wrote some of the, you know, OG articles on this, I feel like, but there’s hundreds of them out there now. So the basic requirements are you invest in a domestic C corporation on original acquisition. So in the United States, a C corp, not an LLC or an S Corp or partnership, original acquisition. So you can’t buy this these shares on the secondary market. At the time that you invest, there’s old rules and there’s new rules. We’ll go with the new rules. The company has to have less than 75 million of net book assets. So not the value of the company but the actual accounting assets of the company on the books. It also needs to be not in a prohibited industry. So prohibited industries think of service companies, a lot of service companies, think of oil and gas.
Guest 1: I think banks are in there.
Guest 2: Yeah, financial. They don’t tell you what qualifies, they tell you what doesn’t. So what does qualify? What types of companies? Almost all your tech companies, all your software, manufacturing companies, those are normally going to qualify. There’s some other nuance, some other requirements, but basically you make your investment. If you hold three years before you sell, and by make your investment, you have to exercise the option or purchase the stock.
Guest 1: It can’t be an unexercised option. So when we talked earlier about options, it can’t just be you receive the ability to buy shares. You literally have to purchase the shares for the QBS clock to start.
Guest 2: Or the partnership you invest in, if you invest through a special purpose vehicle, the partnership can purchase the shares on your behalf, on all of the limited partners’ behalf and start the clock. So if you meet these requirements, then why are we jumping through all these hoops? What’s the benefit? Well, if this purchase occurred after July 4th, 2025 after Oba passed, then you’re looking at up to $15 million of tax-free federal capital gain. Most states mirror the federal law and they would also make it state tax-free. Some states like California and a handful of others, they do not accept this and so they they’ll just tax you like normal. And so that those are the basic rules. I don’t know how you acquired whatever private company stock that you have, but you know, you may be sitting on some something tax free.
Mindy: Well, now I have to go do some research. I don’t think I am, but boy, would that be awesome.
Scott: A couple more practical questions. So, I know we’re going way long here, but this is I think very useful stuff here.
Guest 2: This is scratching the surface, Scott.
Guest 1: I’m pretty sure between the two of us, we could write a couple books on.
Scott: So I’m looking at your prices here and for what it’s worth, I thought these were fair prices. That’s why we were excited to partner with you guys um on this. But you charge 800 bucks um or $1,600 for advice an advice session and $6,000 or $10,000 for a plan, a full financial plan in here. If I’m 26 and I’m joining one of these tech companies and getting my shares, that’s a big deal. I’m reluctant to spend that. But are there mistakes that I’m making at that point when I’ve joined the company that I’m going to regret later when I need this? Or is this something that I should I should really spend the money on when the liquidity event is approaching and I’m about to make a decision, sell or keep um at that point. When when would you honestly advise the the person to to talk to somebody that specializes in this?
Guest 1: I mean if this is your first job in tech or something, I wouldn’t hire us. I started Equity FTW to educate the people who can’t or won’t hire a financial advisor who knows stuff on equity compensation. So if you’re brand new to a company, first job, yeah, just learn, you know, spend time reading and learning about the specific stuff you have, even if you don’t find it fun, just spend literally 20 minutes trying to learn and you’ll be in a much better position.
Scott: Let’s say I’m between two companies and I think that they both have very similar prospects. But one is offering a different type of equity than the other. Does that change your assumption there? Is that something that I should really think about at that point?
Guest 1: Yeah, that’s a great question.
Guest 2: The way I’d answer that, Scott, and getting back to a little bit for why CJ started this firm. Some of those fees are one time, some of those are monthly subscription. It’s a no-brainer decision if you’re somebody who has a larger portfolio, let’s call it 2 million plus that’s paying a traditional AUM advisor, starting on kind of the 1% starting club that is not providing them in addition to the investment management, tax planning, holistic financial planning, estate planning, the firm was started to capture that audience. I don’t know how this compares to the BiggerPockets Money audience, but there’s a lot of people out there with a handful of million dollars that aren’t getting comprehensive advice that are paying 1% that are essentially just overpaying. CJ and I believe that AI is eventually going to come and potentially eat the lunch of those traditional AUM advisors that aren’t more comprehensive. But we started this, so and we kind of positioned our fees sort of in between a wealth front, um, that’s going to charge you 25 basis points, and that traditional advisor. If you run the math, someone with, you know, two, three million bucks what they would pay the traditional advisor versus what they get and what they would pay a wealth front, a robo advisor versus what they get, we believe that ours is a very attractive value.
Scott: We’re excited around that. I was more curious about when to hire this professional because if I’m not making a decision, I just join a company and they offer options and there’s no no real mistake I can make. I would have DIY’d it myself for years and did. But when are the decision points in there and uh when when do you go and and get professional advice in in your view, in your biased view, of course.
Guest 1: Yeah, in my biased view, you know, I I think job switches can be a good opportunity to, you know, assess an advisor like us. I mean, I think it really depends. I mean, when you talk about somebody joining a company, I mean, I don’t know the level of compensation or like the level of equity at stake, but there are some best practices for negotiating option agreements with companies. That’s for sure. So even outside of the typical financial planning, advisors like us and other advisors who know equity comp well, would likely be able to provide some opinions, though not legal advice on how to better structure a deal with an employer or prospective employer.
Guest 2: If you’re at an early stage company and you’re, you know, like you said, 26 year old, if you’ve got money, read the articles, if you’ve got questions, talk to somebody like us. If you don’t have the money, wait until you start to see the hockey stick, right? So once your valuation, you know, these early stage companies, you’re usually pennies on the dollar. Once and 409A valuations are usually quarterly at that point. They start off annually, then they’re quarterly. Once you start to see significant bumps in the 409A valuation, which is widely available within the company, that means that compensation element, that option spread is starting to take off. And so that’s when you need to do the planning because if you let that get too far out ahead of you, you’re going to regret it, whether you miss out on having tax-free gains in the future or having long-term capital gains, usually the ROI on that few thousand dollar investment will be well worth it. But if you’re just at that company, you don’t got much money, you’re new and the valuation really isn’t changing much, then you’re haven’t lost anything yet.
Scott: Awesome. And where can people find you guys?
Guest 1: Yeah, just the website, equityftw.com. I’m sure you’ll share a link. I even have a specific link for BiggerPockets Money people that they can check out.
Scott: If it’s easier, biggerpocketsmoney.com/equity will also take you right there to equityw.com. So go check that out. And yeah, we think, you know, we we were really impressed with with CJ and Toby and and their their knowledge on this and that’s why we’re excited to partner with you guys and for for the folks that have this very good specialized niche problem in the space which I think is a lot of people at SpaceX right now.
Guest 1: Yeah, SpaceX, anthropic. I feel like it’s kind of a crazy time we’re in.
Mindy: I feel like it’s a crazy time and we are talking to people who, like I’m not concerned about the executives at these companies. I’m concerned with the people who have just been, you know, plugging away doing their thing and then all of a sudden, they are multimillionaires. I don’t want them to make a mistake.
Guest 1: I mean, the more money you have, the more consequential mistakes are and the more consequential the opportunities are too. I mean, even just little things, like in California, a big thing is making sure cash is properly parked where it should be. Even that can be the difference of, you know, $10,000 per year in additional interest by doing that correctly.
Mindy: I don’t want to lose out on $10,000 a year in interest just because I put it in the wrong spot.
Scott: Well CJ and Toby, thank you guys so much for coming on and sharing your wisdom here. We really appreciate it. We’ll see if there’s any follow-up questions from this in the in the YouTube channel or anywhere else where where folks will be listening. and um yeah, we really appreciate it and look forward to staying in touch.
Guest 2: Awesome. We appreciate it too. Uh, like I said before, just scratching the surface, if there’s any other topics you want to drill down on further in the future, we’re we’re happy to oblige.
Mindy: There will be.
Guest 1: Thank you, Scott. Thank you, Mindy.
Mindy: Thank you, CJ. Thank you, Toby. We’ll talk to you soon.
Guest 1: All right, see you.
Mindy: Okay, Scott, that was CJ and Toby from Equity for the Win. There was a lot of information we got from them. I now have a lot of rabbit holes to go dive down and I know once I dive down those rabbit holes, we’re going to have to have CJ and Toby back to kind of explain them a little bit more. Did anything surprise you during that show?
Scott: I would say yes and no. Um it’s the the surprising thing is just how complex it is and the terminology that you need to have here and the decisions that you need to to get right. But it sounded like at the highest level that that you agreed with the the general framework that I I had proposed there. And I think that the hardest part of this is the alignment of, “No, I’m not going to stay invested, you know, this heavily in one company stock unless there’s a good reason for it or I’m not dependent on the position in there.” And I think that’s probably the hardest emotional part of this that that really they have to deal with a lot. And that’s maybe that’s maybe that’s a big part of the value as well of talking to somebody who’s experienced with this is, you know, you’re always feels like your company’s going to win and maybe it will from here. and you’re going to miss out on a on a big time basis. There’s also plenty of people who lost and, you know, you only have to get rich once. And if that’s something to be said for that and and thinking about how that’s going to impact what you’re going to do when you when you do have one of these big windfalls.
Mindy: Yeah. Well, I mean, you can get rich once and then lose it all and get rich again.
Scott: Well, then you have to get rich twice.
Mindy: Yeah, you just really want to get rich that one time and keep as much of it as you can. I mean, you were the one who put in the work at the company that may or may not have gone public. And once they went public, now you’ve got this liquidity. You really want to be able to keep as much as you can. And I can see a lot of people just making mistakes because they don’t know what they don’t know. And that’s why we wanted to bring CJ and Toby on to discuss the different things that could happen if you sold your stock at different times, if you had different types of stock to sell, etc.
Scott: And we didn’t even get to things like lockup periods and, you know, when the liquidity options are going to be there for for various folks. We didn’t talk about the the potential pressure inside some of these companies, I don’t know, to remain a major shareholder, you know, in order to show allegiance or or buy in to the business. So there’s a whole bunch of other factors that I’m sure that play into this decision. And this is only scratching the surface, but I love it because it’s a very good problem. It’s a hard problem. The stakes are very high. and in many cases and probably most cases for a lot of these these these folks that are having a windfall like in a SpaceX. This is the first time and maybe the only time in their career they’re going to have a windfall like this. And so it’s really important to play that hand right because this is a very high stakes and maybe once in a lifetime, maybe once in a generation opportunity for you.
Mindy: Yes, so make sure that you’re handling it properly and the best way to handle it properly is with guidance from somebody who knows what they’re talking about. Scott and I are really excited for you, but we are not qualified to tell you how to do this properly. That’s why we brought CJ and Toby on.
Mindy: Scott, before we go, I want you to share where we can find that income tax resource that you were talking about during this episode.
Scott: Yeah, you just go to biggerpocketsmoney.com and uh you go to the resources tab on there and then right under there is going to be a tax projection app. and that’s what I’ve got there. And and uh, you know, I’ve checked it a few times, but there’s probably some situation in some of the states. There’s a couple of simplifications in there, but hopefully it’s useful as a tool in getting you a ballpark um to estimate this at the beginning beginning of the journey, but you can’t rely on it. It’s it’s uh it’s a vibe-coded app I built to hopefully be a little helpful. You can check that out at biggerpocketsmoney.com/income-tax-projection or you can navigate there in the nav bar. And then um if you want to talk to CJ and Toby, you can go check out biggerpocketsmoney.com/equity or equityftw.com. and that’s where you can find those guys.
Mindy: All right, Scott, thank you so much for wrapping that up. I know that you have been working very hard on that and I wanted to make sure people knew where they could find it because that looks like something that you can spend a lot of time playing with and having a lot of fun with. Again, for entertainment purposes only, but it gives you a great starting point. You can see how residency in different states can have a big impact on your tax bill. Okay, again, before we go, I want to direct you to our website where you can find even more financial independence information. There’s tons of resources, calculators, forms, like the goal setting worksheet that I discussed earlier to help you on your path to financial independence. BiggerPocketsMoney.com. All right, Scott, should we get out of here?
Scott: Let’s do it.
Mindy: That wraps up this episode of the BiggerPockets Money podcast. We will see you on Friday. He is Scott Trench. I am Mindy Jensen saying, “Stay cool, mule.”
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