Slides from a workshop presented on December 14, 2015 in San Francisco, California by MYeCFO. Covers some of the key tax issues faced by start-up executives and professionals, including maximizing deductions, setting up the right business structure, and dealing with equity based compensation (e.g. ISOs, NSOs, RSUs, Concentrated Positions).

1. Tax Strategy for
Entrepreneurs & Tech Professionals

2. About Us
2
Investment
Management Tax Strategy

3. Contents
• Fundamentals
• Strategy for Business Owners
• The Self-Employed
• The Early Staged
• The Exited
• Q&A

4. Tax Compliance ≠ Tax Strategy
Fundamentals: Principles of Tax Strategy

5. Fundamentals: Principles of Tax Strategy
Avoid Defer
Reclassify Shift
Tax Strategy

6. Fundamentals: Tax Efficiency
Tax Efficient Investors
Pay the least amount in taxes possible given their unique situation.

7. Why is Tax Strategy & Tax Efficiency important?
8%
55%
0%
10%
20%
30%
40%
50%
60%
Historical U.S. Stock Market Return
(Approx)
Highest Combined Marginal Tax Rate of
High-net-Worth Investors in California
(Approx)

8. Fundamentals: Tax Treatment of Income
Tax Treatment Examples
Ordinary Income Taxes
• Salary
• Interest
• Short-term Capital Gains
Long -Term Capital Gain Taxes
• Stocks & Bonds
• Real Estate
• Business Sales
8

9. Fundamentals:
Ordinary Income Tax Rates
Rate Single Married Filing Jointly
10% Up to $9,225 Up to $18,450
15% $9,226 to $37,450 $18,451 to $74,900
25% $37,451 to $90,750 $74,901 to $151,200
28% $90,751 to $189,300 $151,201 to $230,450
33% $189,301 to $411,500 $230,451 to $411,500
35% $411,501 to $413,200 $405,101 to $457,600
39.6% $413,201 or more $464,850 or more
Federal 2015:
9

10. Fundamentals:
Ordinary Income Tax Rates
Rate Single
1% Up to $7850
2% $7,850 to $18,610
4% $18,610 to $29,372
6% $29,372 to $40,773
8% $40,773 to $51,530
9.3% $51,530 to $263,222
10.3% $263,222 to $315,866
11.3% $315,866 to $526,443
12.3% $526,443 and over
California 2015:
Rate Married Filing Jointly
1% Up to $15,700
2% $15,700 to $37,220
4% $37,220 to $58,744
6% $58,744 to $81,546
8% $81,546 to $103,060
9.3% $103,060 to $526,444
10.3% $526,444 to $631,732
11.3% $631,732 to $1,052,886
12.3% $1,052,886 and over
10

11. Fundamentals:
Capital Gains Tax Rates
Ordinary Income Tax Rate Capital Gains Rate
10%, 15% 0%
25%, 28%, 33%, 35% 15%
39.6% 20%
Federal 2015:
California has no “capital gains rate”; it treats all income as ordinary income
11

12. Fundamentals:
Other Taxes
Federal 2015:
Additional Medicare Tax: 0.9%
• Wages, compensation, and self-employment income
Additional Net Investment Income Tax (NIIT): 3.8%
• Capital gains, dividends, interest, rental income
Filing Status AGI Threshold Amount
Single $200,000
Married Filing Jointly $250,000
California 2015:
• Additional 1% surcharge for mental health services applies to taxable income in
excess of $1,000,000
12

13. Fundamentals: Two Methods of Calculating Taxes
AMT MethodRegular Method
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13

14. Fundamentals: Tax Basics
Income
-Adjustments to Income
Adjusted Gross Income (AGI)
-Exemptions
-Deductions
Taxable Income
“Regular” Method
Taxable Income
+ “Preference Items”
- AMT Standard Exemption
AMT Taxable Income
“AMT” Method

15. The Self-Employed
Doing consulting work or having a “side” business. Could also apply
to someone that is just testing out an idea.
Hot Issues:
• What kind of business structure should I use?
• What can I deduct against my business?
• Am I making the right estimated tax payments?

16. The Self-Employed: Business Type
Tax and non-tax factors drive the decision.
Type Common when…
Tax Strategy
Opportunities
Sole Proprietorship
• Business is simple
• Low risk of liability
High
Limited Liability
Company (LLC)
• Partnerships
• Med – High Risk of Liability
Medium - High
S-Corp • Same as LLC + High Profitability Medium – High
C-Corp • Plan to raise money Low – Medium

17. The Self-Employed: Deductions
17
Deductible expenses must be “ordinary & necessary”.
Home Office
Travel
Meals & Entertainment
Utilities
Contractors
Retirement
Employees

18. The Self-Employed: Tax Payments
18
• Safe Harbor Rules
• Withhold 90% of actual taxes or
• Withhold 110% of prior year taxes
• Otherwise Interests + Penalties
• 3% until April 15, 6% after
(annual rate)
• No penalty, but inefficient
• “Interest-free loan to the government”
Pay just enough.
If you underpay… If you overpay…

19. The Early Staged
Founders or early employees of Angel /VC funded corporation that is
privately held.
Hot Issues:
• How do I get favorable tax treatment for my equity?
• When do I exercise my Incentive Stock Options (ISOs)?

20. The Early Staged: Favorable Tax Treatment
20
You want LT Capital Gains, but the benefit is not as good as you might think…
Ordinary income/Short-Term Capital Gains
Federal: +39.6% + 1.2% (deduction phase-out)
California: +8.0% (after-deduction)
Affordable Care Act: +3.8%
52.6%
Long-Term Capital Gains
Federal: +20%
California: +13.3%*
Affordable Care Act:+3.8%
37.1%
Difference = 15.5%
*Would be reduced if AMT does not apply

21. The Early Staged: Incentive Stock Options
Granted Exercised Sold
Bargain Element
(Spread) = P2 – P1
Price
P3 – P2
P3 – P1
P1
P2
P3
Time 21
Exercise & Hold may
trigger AMT
Always taxed on this. Question is which type of tax:
Ordinary Rates, AMT, LT/ST Capital Gains

22. Tax Fundamentals: Tax Basics
Income
-Adjustments to Income
Adjusted Gross Income (AGI)
-Exemptions
-Deductions
Taxable Income
“Regular” Method
Taxable Income
+”Preference Items”
- AMT Standard Exemption
AMT Taxable Income
“AMT” Method
Bargain Element of ISOs.
Strategy: Exercise enough
options so that Regular Method =
AMT Method (or close to it)

23. The Exited
Typically employees of tech companies that have had a liquidity event
such as an IPO, merger, acquisition, etc.
Hot Issues:
• How do I deal with of my equity based compensation (NSOs, RSUs,
ISOs, ESPP)?
• What can I do to reduce my taxes once the company is in steady state?

24. The Exited: Equity Based Compensation
24
Various forms of equity based compensation for tech employees…
Type Summary
Incentive Stock Options
(ISOs)
• Contract to buy stock at a specified price; no tax on
paper gain when exercised under the regular method
Restricted Stock Units
(RSUs)
• Stock grants vested over a number of years. Equivalent
to cash compensation in the eyes of the IRS.
Non-Qualified Stock
Options (NSOs)
• Contract to buy stock at a specified price; treated as
cash compensation when exercised (like RSUs)
Employee Stock Purchase
Plan (ESPP)
• Allows employees to purchase stock at a discount (e.g.
15%)

25. The Exited: Options
25
Jenny the Engineer
Current Stock Price = $10
Scenario 1:
Strike Price = $50
(“way out of the money”)
Hold on and hope
the stock bounces back
Scenario 2:
Strike Price = $9
(“a little in the money”)
Usually hold on because upside
is unlimited and downside is
small
Scenario 3:
Strike Price = $1
(“way in the money”)
Exercise and either sell in a year
or sell right away

26. The Exited: Priority List
26
Jenny the Engineer
Priority Action Logic (typical, not always the case)
1 Sell RSUs • Highest basis, so no benefit to waiting.
2 Sell ESPP • Gain will normally be taxed as ordinary income
3
Exercise/Sell
NSOs
• Basis is market value when exercised; after ESPP due
to less downside
4
Exercise/Sell
ISOs
• Lowest basis, best potential for LT Gains; sell last
given AMT issues

27. The Exited: Timing of Sale
27
Sell everything as soon as you can!
Sell when you anticipate price decline…
Our initial recommendation:
Or…
If you expect price increase…
• Do not exercise options - the tax savings are not that significant.
• A better strategy is to use that cash to buy more stock.
Or…
It is safest to wait to exercise until you are ready to sell
• If stock increases, you profit.
• If not, there is no cash lost.

28. The Exited: Increasing Tax Efficiency
28
7 Strategies to Maximize Tax Efficiency
2. Maximize contributions to Tax-Deferred Accounts
3. Shift Income to Lowered Tax Parties
4. Maximize Asset Location Efficiency
5. Invest in Tax Efficient Vehicles
6. Donate Appreciated Investments
7. Harvest Tax Losses
1. Develop Focused Asset Allocations

29. Contact Information
Martin Curiel, CFA
martin@myecfo.com
(650) 231-4609

30. Disclosures
Nothing in this presentation should be construed as a solicitation or offer or
recommendation to buy or sell any security. Advisory services are only provided to
investors who become MYeCFO clients pursuant a written agreement, which clients are
urged to read carefully in determining whether such agreement is suitable for the
individual facts and circumstances. Past performance is no guarantee of future results,
and any hypothetical returns, expected returns, or probability projections may not
reflect actual future performance. Investors should review MYeCFO’s website for
additional information about advisory services.