I use both depending on my mood. Actually, I take that back. I use Ha never haha.
@doschicos, I used to judge people more. I don’t like to do that now. I don’t walk in their shoes.
I think I read one of those links you posted before. 
One of your links says the middle class is income up to $250,000. I don’t agree with that. But, if NG has read your link, he may really think he is middle class.
He has confirmation.
Just for the record, I don’t handle my financial situation like NG and I don’t recommend handling financial matters like NG.
Is he a con? I think he has equity in his house. Maybe $400-$500,000. I think he does have cash flow problems. He did get screwed on taxes. He got screwed on financial aid because he had to keep his advance handy for multiple years. So he had to show an asset that was going to be spent.
However, if he received income over a 5 year period, instead of 1 year, that income would have accounted against him for 5 years. Maybe he would have ended up worse off. Maybe.
He did say he is in better position than many in the middle class.
I talked to this guy and he said, “I don’t know where I am going to come up with $5,000 in cash”. He is worth around $10 million.
Actually, I know a couple of people like this. Maybe you do too.
It’s bizarre, but there are people like this out there.
I do know people that have financial problems. Very serious financial problems. I don’t just hang around with millionaires.
So NG is a BS artist, I agree. But there are some valid things he touches upon that flew over most posters’ heads. So how about this: instead of bashing the guy (gee does he deserve such attention?) let’s talk about what kind of not so obvious financial lessons can we draw from his situation. I am not talking about the obvious, like do not buy a co-op, get a small house, send kids to CC, etc. I am talking about hidden gotchas, like taxes.
Here is one - right out of his article. If you have freelancer kids, tell them to negotiate their payment to be spread over the length of the project if it is years, not paid in a lump sum in one year. The tax bill on one $200,000 payment is much higher than total tax on four $50k annual projects. Our income tax is progressive. Spread the income into the year where you don’t expect to get paid much! Everyone selfemployed should also know that they are on the hook for the employer’s share of FICA.
Another one, not from NG, but inspired by the tax hit discussion. Anyone who is compensated in stock options should educate themselves about how those are taxed. A guy looks at his stock options (ISO) and notices that one grant is about to expire. He buys them. 10 cents a share. The stock trades at $20. The guy is not allowed to sell stock right away because of the insider trading restrictions. Al Gore announces that the human genome had been sequenced, therefore stick a fork in biotech. The biotech index crashes, pulling the Nasdaq even lower than tech did! The stock goes to $1 when the guy is allowed to sell in the year after he bought the stock… How much tax does he owe for the prior year? On a $19.90 per share gain!! And he gets to fill out the AMT form. Lovely, but that is how ISOs are taxed. It is a real example with some changes to the numbers. I personally was lucky that I bought a copy of Consider Your Options because I had no idea what the stupid ISO meant. After reading it… Uh-oh, I took a pencil and did some math for Mr.'s compensation. We dodged the AMT bullet.
Personally, I hate being in debt. But I will not cut up my credit cards because I like the perk$. like the Costco cashback.
@doschicos, why is he a con?
I didn’t say he’s a con but I do think he’s a BSer, and he BSes himself first. He’s a talker, a spinner. He’s not a straight shooter. To me, that is different from a con. But I tend to favor down to earth, straight talkers, people who don’t put on airs or don’t talk spin, @dstark.
“I talked to this guy and he said, “I don’t know where I am going to come up with $5,000 in cash”. He is worth around $10 million. Actually, I know a couple of people like this. Maybe you do too.”
I do know people like this @dstark and it usually means that they don’t want to liquidate some less liquid asset, because maybe the time isn’t prudent or there are costs associated with doing so. If they truly have the net worth and assets, my answer is “too bad, so sad”. There’s a reason it is recommended to keep 6-12 months of assets liquid (yes, this is something not attainable for many but is the right step for those with the incomes/net worths to do so)
Or, it could mean he isn’t worth what he projects. Or, they don’t want to cough up the $5k and are looking for an excuse.
I didn’t realize you were restricted from selling the stock for a period after you exercise the options.
That is terrible. With all the clout in the tech and biotech world, why hasn’t this been changed?
These iso are taxed at ordinary gains, right?
So you pay taxes without receiving cash. That’s bad.
In your example, what happens tax wise, if the next year, you sell the stock for a $1?
Do you get to go back and revise the prior year’s tax return?
“These iso are taxed at ordinary gains, right?”
NQ are taxed as ordinary gains. The ISOs have no impact on your 1040, but they are taxed under AMT… And if there is a “gain,” you bet the AMT will kick in. Your stock gets a new basis for AMT purposes… Bottom line, it SUCKS!!!
http://www.fairmark.com/execcomp/isoexer.htm
I think most cos lightened the insider trading requirements since the big bust. Only the big wigs have their Etrade accounts locked.
Back then when the dinosaurs roamed the Earth… If you sell the stock for $1, you will report $.90 on Sch. D per share, and for AMT, you report a loss since your stock has an AMT adjustment… And you have to keep track of that “AMT adjustment”! You can still end up in the hole… if the entire affair spreads over 3 years. It requires planning.
“I talked to this guy and he said, “I don’t know where I am going to come up with $5,000 in cash”. He is worth around $10 million.
Actually, I know a couple of people like this. Maybe you do too.”
Oh please. His line of credit at his bank is probably in the six figures. And am I to believe he has no stock in regular investment accounts that he couldn’t sell some shares to get the cash?
I had to come up with $8k during a two week span to set my S up in Boston when he moved there after graduating for his job. I wrote a bunch if checks. I did have to transfer the money from my savings account, where I stash at least 10-15k for unexpected expenses, to my checking account. Took a grand total of 2 minutes online to do. If I had needed it in cash it would have taken me 15 minutes - the time it takes me to drive to my bank.
Our net worth is way less than 10 million, too.
That is if you are subject to trading window restrictions. That is generally why ISO holders who want to avoid the AMT mess exercise ISOs for same day sale while any applicable trading window is open.
Wow BB, thanks. I so glad I read this discussion. Off the main topic, but D got RSUs (don’t know how those are different, but she doesn’t have access yet…), and is really unfamiliar with anything financial. It sounds like she’s going to have a lot of figuring out to do.
More on the main topic, people can get screwed over in all sorts of ways, and many of them are unpredictable. While I’m not without sympathy, my D, who now has a lucrative job, lives under her means and saves most of her salary. We both recognize that it is possible, and in fact likely, that she will not always be able to have a good job. So even when she gets crushed by taxes by mishandling her RSUs it will be sad, but not fatal. Yeah, a lot of people don’t live this way. I really don’t judge, but you have to realize that when you ignore your Mom’s and other solid financial advice you do so at some peril.
Ucb, you copy and paste from links you find on the Internet, I know real people who had no idea about the AMT implications. It is not widely advertised that the same day sale solves the problem. I think most companies nowadays provide employees with some resources to educate them about option compensation, but I have encountered HR dumber than rocks who were saying one has to always hang on to the exercised ISOs to get advantage of long term gains. Lol.
Here is a good one for you. RSU. When it vests, it vests automatically. It is a gain for your ordinary income. But if your vesting happened at the end of the year and the trading window was closed… You owe the IRS. Most places ease the burden by talking out your tax via sale of a portion of what vests, 25% I think.
Anyway. Money windfall is not always a windfall.
I just want to look NQ for a second.
Feel free to correct me… 
I want to know why people blew up when techs or biotechs crashed.
Your example… .10— stock trades at $20. You don’t sell… Have to pay taxes on $19.90 gain at ordinary tax rates.
Next year, you sell for a $1. What happens?
Do you get to file a 1040x for the year you paid the tax? How is the $19 difference between the $20 stock price and your actual selling price of $1 handled.
Nope, no going back on tax forms 
. If you do not sell your NQ the day of exercise, you own a stock with a new basis. For NQ, same day exercise is always wise.
This is super helpful - in plain English:
http://www.fairmark.com/execcomp/nqoexer.htm
The example uses an exercise of 1,000 NQO with $15 purchase price at the time the stock is $40 ($40,000-$15,000 = $25,000 bargain element) :
Discalimer: Always consult a pro! 'Cause I am not
@BunsenBurner, nevermind. I found the info. You have a capital loss of $19 a share after paying ordinary taxes on the phantom gain. This could stink,
If your techie kids are compensated in equity… They need to know how Uncle Sam gets to grab his share of their compensation and to plan for the taxes due.
Always read the employer’s rules. The trading windows and restrictions on sale vary.
The Fairmark site is the best, IMO. I’ve used his advice in 1999 (cue in Prince).
Try to imagine how badly NG would have screwed up had he been compensated with options!!!
I get why notrichenough complains about the amt with iso.
Thanks for this stock discussion. I’ve been hearing the kids talk about some of these issues and thank goodness they are smarter than I am because it just sounds like gibberish when they get started. And I don’t like to ask too many questions( just in case I sound like dstark’s mom) so this explains to me some of their decisions.
This is really interesting to think about in the context of how some of our kids get compensated for their jobs. And how much they are really being compensated.
I joined this board in 2004 and I’ve been thinking about how economic and financial advice here has changed during those years. In the early years, we’d have threads where kids were choosing between full tuition merit awards at some place like Vanderbilt or significant debt at HYP. In my memory the majority of parents advised the debt was well worth it and the kid would be able to pay it off in no time at all. That seems like a different world at this point in time.
Lots of what the author did is what friends of mine did, on advice of so called financial experts. I can remember a time when I was an anomaly for refusing to take out a bridge loan.
I had one of those big tax events this year and immediately called our accountant to figure out what taxes we would owe. Then I wanted to know why I wasn’t able to spread it out over several years to stay in my normal, much lower bracket, so I’m sympathetic to that too. Lucky for me, I didn’t need that money for living expenses and could just set it aside till I paid the taxes due, which wasn’t at all clear till a couple of weeks ago.