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      05-07-2013, 08:53 PM   #1
Th3xf4ctor
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Need Help (Tax, Finance...etc)

I need some help from someone in the finance or tax related fields.

My question is in regards to this: I am to be given preferred stock. Around 800 preferred shares valued at a price of $2.50/per share. The conversion factor to common stock is 100,000:1. If I am to convert 1 preferred share, that would give me 100,000 common stock. If the price of the common shares is $2.50 that would equal a sum of $250,000. What are my tax burdens. Would I end up paying tax on the 800 preferred at there price plus the 100,000 shares of common stock at the selling price? This is where I need help. If someone could help me I would greatly appreciate it.
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      05-07-2013, 09:15 PM   #2
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Quote:
Originally Posted by Th3xf4ctor
I need some help from someone in the finance or tax related fields.

My question is in regards to this: I am to be given preferred stock. Around 800 preferred shares valued at a price of $2.50/per share. The conversion factor to common stock is 100,000:1. If I am to convert 1 preferred share, that would give me 100,000 common stock. If the price of the common shares is $2.50 that would equal a sum of $250,000. What are my tax burdens. Would I end up paying tax on the 800 preferred at there price plus the 100,000 shares of common stock at the selling price? This is where I need help. If someone could help me I would greatly appreciate it.
Which finance class is this for ?
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      05-07-2013, 09:42 PM   #3
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donate them to your cousin in switzerland
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      05-07-2013, 09:53 PM   #4
Th3xf4ctor
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Quote:
Originally Posted by bolinp78 View Post
Which finance class is this for ?
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Originally Posted by R Grubba Balls View Post
donate them to your cousin in switzerland
Not for a class. I am in a similar position as what is described and trying to understand the tax burden that I will have.
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      05-07-2013, 11:43 PM   #5
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According to your 1st thread on e90post, you go to the University of Utah. Good luck on your exams.
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      05-07-2013, 11:59 PM   #6
Th3xf4ctor
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Thanks. I actually graduated in December. This is just a personal question.
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      05-08-2013, 07:06 AM   #7
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How could a preferred share valued at $2.50 per share be convertible to 100,000 shares of common valued at the same price per share? Clearly the preferred share should have a MUCH greater value no?

But anyway, Im no expert but I believe you will pay tax on the value of the preferred shares you receive (ie 200 x $2.50). Then if you convert your tax basis will simply increase but you will not pay any additional tax until you sell the shares.
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      05-08-2013, 12:22 PM   #8
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800 preferred shares = 80,000,000 shares converted = $200,000,000... if this is for school it is a flawed question IMO, if it is real life stop being an idiot and PAY someone to answer that for you if you are looking at being "given" 200mil.

You would pay tax on what you are given but at this conversion and share price the preferred shares would be worth WAY more than $2.50, the warrant portion would be worth more than that alone. Personally I am not aware of any preferred equity that has conversion options, just debt. Most of the preferred equity I hear of is just like regular stock, just with no voting rights and seniority over dividend payments.
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      05-08-2013, 05:51 PM   #9
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Simple you only paid taxes once you sell, but are the Option or RCU share they giving you and when do they vest immediately or over some people of time. Option and RCU have different tax issues. Now if are giving you the share outright then the tax is backed on the face value of the shares at the time they were giving to you. Once you sell then you subtract off basis which you already paid the taxes on when they gave them to you and pay the difference in tax assuming the value went up.

But I highly doubt you are getting preferred shock in a public trade company, maybe if you a founding member of a start up you were awarded preferred shares, but again there is usually no tax liability on that since it owner equity in the business and there are how set of other rules around that.

If you are in a position to get preferred share you should be hiring a tax accountant verse asking us all here since you probably sitting in a good position and you need to hire someone to avoid paying too much tax
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      05-08-2013, 10:45 PM   #10
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Quote:
Originally Posted by Th3xf4ctor View Post
Not for a class. I am in a similar position as what is described and trying to understand the tax burden that I will have.

Are you serious? If you convert, you will have 80 million common stock shares, valued at $2.50 per share; that's 200 million dollars, whereas the preferred stock is only worth $2k?
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      05-18-2013, 07:34 PM   #11
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I've been given shares in a publicly traded company thats why I asked. This is what I thought in regards to being taxed on final sell value. The conversion is written into the articles of incorporation and they are restricted to only be able to convert one every 6 months to a year. Already planned on that and preparing for tax stuff.
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