Start-up companies have largely benefited from the reorganisation and reduction of corporation tax in the US, by also having the opportunity to delay tax bills associated with selling company shares.
To receive tax benefits, companies must provide stock options for at least 80% of their employees.
Employees having options are usually required to exercise them within 10 years or 3 months from the time they exit the start-up. The profit from these shares is subject to income tax, and the tax can easily rise to hundreds of thousands of dollars for employees at a successful startup, tax experts say. The cost of a stock option package can cost about 10 times an employee’s salary, however employees face a big problem when the start-up has not yet commenced trading, and they can not sell shares to get cash to be used for company funding.
Thanks to new legislation, employees of a private company will be able to defer these taxes for up to five years.