In Silicon Valley, Much-Feared Tax Bill Pays Dividends for Workers

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Nellen estimated that Emmett, who rents an apartment, has no children and earns $16 an hour in addition to some social security income, would see a $546 cut in taxes

Critics of the tax bill note that the individual tax cuts will disappear after 2025, and that most of the benefits flow to the corporations and the wealthiest individuals, even if lower-income people get some tax relief.

 

 

Health insurance premiums for Californians are also likely to rise substantially as a result of the repeal of fines for those who refuse to obtain health coverage under the Affordable Care Act. And even if Bay Area residents mostly enjoy some tax cuts, they gain much less than those in low-tax states.

 

STARTUP WINNERS

Employees in Silicon Valley, the world’s startup capital, scored two major victories in the tax bill.

 

 

First, startup employees can hold off on paying taxes related to stock options they exercised. That can be a big help if a company is still private, since in that situation employees have to pay tax even before they can earn cash from selling shares.

Startup employees will also have more opportunity to exercise what are known as “incentive stock options” with less chance of being on the hook for the alternative minimum tax, according to Mark Setzen, a long-time certified public accountant in Silicon Valley.

 

Also coming out ahead are independent contractors, ranging from engineers to marketers to caterers, who stand to benefit from a new 20 percent deduction of business income

Arun Sood, a freelance software engineer in San Francisco who makes about $150,000 annually, said he accrues few deductions because he rents his home, holds no debt and has no children. Now he gets a big new deduction and a lower tax rate.

“Looking at this selfishly, it’s going to be a positive impact,” said Sood, who has freelanced for Axios, Cisco and Macy’s.

The tax plan mostly preserves a tax break for venture capitalists that had been in jeopardy. The so-called carried interest provision lets venture capitalists book the 20 percent fee they typically take on a profitable investment as a capital gain, which carries a lower tax rate than ordinary income, even though the venture investors do not put up any of their personal capital.

 

 

Now the capital gains rate will apply only to investments held at least three years — a limitation that venture capitalists said would come into play only occasionally.

Silicon Valley executives with high salaries will take home extra money, too, because language in the current tax law known as the Pease Limitation had already limited their deductions, said Andrew Mattson, a tax partner serving technology industry clients at accountancy Moss Adams.

Executives also may see base pay rise in coming years. The tax bill removes corporate tax breaks for performance bonuses, which is already leading companies to reconsider pay packages for chief-level executives, lawyers said.

 

(Reporting by Paresh Dave, Heather Somerville, Jeffrey Dastin and Salvador Rodriguez; Editing by Jonathan Weber and Lisa Shumaker)

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