Is stock in a private corporation taxable?
"This stock is the same as any other, but you need to keep clear in your head that you and your company are now different entities.  You (the person) will pay tax on capital gains and losses when you sell any stock that you hold in your own name.  You'll also owe ""regular"" tax if you draw a salary, etc.  The fact that it may be ""your"" company does not change these things. The company will not recognize a gain by selling stock to raise capital since it's nominally exchanging things of equal value, say $100 in cash for $100 in stock.  In order to sell stock, however, you MIGHT need to register with the SEC depending on how you're going about finding your investors, so keep that in mind."
Read this-   [Out of Control: The Coast-to-Coast Failures of Outsourcing Public Services to For-Profit Corporations](http://www.inthepublicinterest.org/sites/default/files/1213%20Out_of_Control.pdf)  Free trade agreements mandate a one way street to privatization of almost all public jobs and publicly procured services because it puts those jobs into play, they can then become bargaining chips in the globalization trading game. For example, US teaching jobs could be traded for national treatment in trade deals like TiSA- They could become valuable in the context of the fact that countries like India have a rapidly growing market and a surplus of people with degrees who speak perfect English. the US pharmaceutical industry might be able to trade access to those contracts for something like the curtailment of Indias policy on making cheap generic drugs. That kind of thing makes the US pharmaceutical industry see red. There has been a longstanding dispute with Australia over Australia's public health care systems' buying of drugs at a discount. The US claims thats prohibited by an FTA.  I think its the US's position is that that is unfair discrimination against corporations. Only private for-profit companies are allowed to negotiate discounts. You can probably find more here: http://www.bilaterals.org/?-US-Australia- or here http://www.italaw.com  (plug in the word Australia)  Privatization is often mostly about looting public resources for some goal that is very much against the public interest!   For example, look at the National City Lines fiasco- the reason the US went from having one of the very best to one of the worst public transit systems in the developed world - in only 30 years- is now addicted to oil and gas. "For restricted stock, I think the vesting date meets the requirements of the second wash sale trigger from IRS Pub 550: Wash Sales: Acquire substantially identical stock or securities in a fully taxable trade I base this on these two quotes from IRS Pub 525: Restricted Property: any income from the property, or the right to use the property, is included in your income as additional compensation in the year you receive the income or have the right to use the property. - Until the property becomes substantially vested, it is owned by the person who makes the transfer to you, usually your employer.  So on the vest date: The transfer is taxable Ownership is transferred to you That seems close enough to ""a fully taxable trade"" for me.  Maybe this changes if you pay the tax on the stock on the grant date. See Pub 525: Restricted Property: Choosing to include in income for year of transfer. Obviously, if this is important you should consult your tax advisor.  Technicalities aside, I don't think it passes the sniff test. You're getting salable shares when the restricted stock vests. If you're selling other shares at a loss within 30 days of the vesting date, that smells like a wash sale to me." "Off the top of my head, I don't know of any publicly-traded companies that routinely earmark distributions as return of capital, but theoretically, it's certainly applicable to any publicly-traded company. The Wikipedia article gives one situation in which a publicly-traded company may use return of capital: Public business may return capital as a means to increase the debt/equity ratio and increase their leverage (risk profile). Since return of capital is a distribution, it shrinks the firm's equity, thus increasing its leverage. Investopedia also has an article, Dividend Facts You May Not Know, that gives an example of when return of capital might be used: Sometimes, especially in the case of a special, large dividend, part of the dividend is actually declared by the company to be a return of capital. In this case, instead of being taxed at the time of distribution, the return of capital is used to reduce the basis of the stock, making for a larger capital gain down the road, assuming the selling price is higher than the basis. For instance, if you buy shares with a basis of $10 each and you get a $1 special dividend, 55 cents of which is return of capital, the taxable dividend is 45 cents, the new basis is $9.45 and you will pay capital gains tax on that 55 cents when you sell your shares sometime in the future. A company may choose to earmark some or all of its distribution as return of capital in order to provide shareholders with a more beneficial tax treatment. The IRS describes this different tax treatment: Distributions that qualify as a return of capital are not dividends. A return of capital is a return of some or all of your investment in the stock of the company. A return of capital reduces the basis of your stock. These distributions don't necessarily count as taxable income, except in some instances: Once the basis of your stock has been reduced to zero, any further non-dividend distribution is capital gain. The IRS also states: A distribution generally qualifies as a return of capital if the corporation making the distribution does not have any accumulated or current year earnings and profits. In this case, the firm is lowering its equity because it's paying distributions out of that equity instead of accumulated earnings/profits. A company may use return of capital to maintain a distribution even in times of financial difficulty.  In the context of closed-end funds, however, return of capital can be much more complicated and can affect the fund's performance and reputation in numerous ways. Also, JB King is correct in cautioning you that ""return of capital"" is not the same thing as ""return on capital*. The latter is a method for valuing a company and determining ""how efficient a company is where it comes to using its resources."" (to quote JB King's comment again)." If you have a new company and you want to attract investors, such as venture capitalists and private equity, incorporating in Delaware LLC probably makes sense. There are actually many investors who will only invest in a Delaware Online incorporation, so starting off by creating a Delaware corporation from the beginning may save a lot of money and stress down the road. You can also choose to form an LLC in Delaware, to begin with, then convert it to a C corporation later. I can make that election to pay taxes now (even though they aren't vested) based on the dollar value at the time they are granted? That is correct. You must file the election with the IRS within 30 days after the grant (and then attach a copy to that year's tax return). would I not pay any taxes on the gains because I already claimed them as income? No, you claim income based on the grant value, the gains after that are your taxable capital gains. The difference is that if you don't use 83(b) election - that would not be capital gains, but rather ordinary salary income. what happens if I quit / get terminated after paying taxes on un-vested shares? Do I lose those taxes, or do I get it back in a refund next year? Or would it be a deduction next year? You lose these taxes. That's the risk you're taking. Generally 83(b) election is not very useful for RSUs of established public companies. You take a large risk of forfeited taxes to save the difference between capital gains and ordinary gains, which is not all that much. It is very useful when you're in a startup with valuations growing rapidly but stocks not yet publicly trading, which means that if you pay tax on vest you'll pay much more and won't have stocks to sell to cover for that, while the amounts you put at risk are relatively small. "It's actually the other way around.  Distributions in an LLC are usually based on  each member's equity share, although the operating agreement can specify how often such distributions are made.  Shareholders in a corporation can receive dividends, but those are determined by the corporation's board and can vary depending on the class of stock each shareholder owns.  Preferred-class shareholders, who may hold a smaller overall fraction of the company's outstanding shares than the common stock shareholders, may receive disproportionately larger dividends per share than common stock shareholders, which is one of the (many) reasons that preferred stock is a better choice when it is available.  Take, for instance, what Berkshire Class ""A"" shareholders receive in dividends per year compared to Class ""B"" shareholders. Here's a good link from LegalZoom that can explain what you're asking about: Explanation of LLC distributions I hope this helps. Good luck!" "Off the top of my head, I don't know of any publicly-traded companies that routinely earmark distributions as return of capital, but theoretically, it's certainly applicable to any publicly-traded company. The Wikipedia article gives one situation in which a publicly-traded company may use return of capital: Public business may return capital as a means to increase the debt/equity ratio and increase their leverage (risk profile). Since return of capital is a distribution, it shrinks the firm's equity, thus increasing its leverage. Investopedia also has an article, Dividend Facts You May Not Know, that gives an example of when return of capital might be used: Sometimes, especially in the case of a special, large dividend, part of the dividend is actually declared by the company to be a return of capital. In this case, instead of being taxed at the time of distribution, the return of capital is used to reduce the basis of the stock, making for a larger capital gain down the road, assuming the selling price is higher than the basis. For instance, if you buy shares with a basis of $10 each and you get a $1 special dividend, 55 cents of which is return of capital, the taxable dividend is 45 cents, the new basis is $9.45 and you will pay capital gains tax on that 55 cents when you sell your shares sometime in the future. A company may choose to earmark some or all of its distribution as return of capital in order to provide shareholders with a more beneficial tax treatment. The IRS describes this different tax treatment: Distributions that qualify as a return of capital are not dividends. A return of capital is a return of some or all of your investment in the stock of the company. A return of capital reduces the basis of your stock. These distributions don't necessarily count as taxable income, except in some instances: Once the basis of your stock has been reduced to zero, any further non-dividend distribution is capital gain. The IRS also states: A distribution generally qualifies as a return of capital if the corporation making the distribution does not have any accumulated or current year earnings and profits. In this case, the firm is lowering its equity because it's paying distributions out of that equity instead of accumulated earnings/profits. A company may use return of capital to maintain a distribution even in times of financial difficulty.  In the context of closed-end funds, however, return of capital can be much more complicated and can affect the fund's performance and reputation in numerous ways. Also, JB King is correct in cautioning you that ""return of capital"" is not the same thing as ""return on capital*. The latter is a method for valuing a company and determining ""how efficient a company is where it comes to using its resources."" (to quote JB King's comment again)." "If it's fully expensed, it has zero basis. Any sale is taxable, 100%. To the ordinary income / cap gain issue raised in comment - It's a cap gain, but I believe, as with real estate, special rates apply. This is where I am out of my area of expertise, and as they say - ""Consult a professional."""