How do I reduce my 409A value?

How do I reduce my 409A value?

The most common solution is to reprice options at the new 409A valuation, or cancel existing options and re-issue them at the new exercise price. In general, repricing is not a common practice, so the drop in share price should be material.

Can I do my own 409A valuation?

You have three options to get a 409A valuation report: Do it yourself. This is the riskiest option of the three because there is no “safe harbor” protection should the IRS get involved. Unless you have the expertise and education needed to do a 409A, leave it in the hands of a professional.

How often do you need a 409A valuation?

once every 12 months
#3 How often should I do a 409A valuation? Companies are expected to conduct 409A valuations at least once every 12 months, or when a material event has occurred that would affect the value of the company – whichever occurs sooner.

Do you want a high or low 409A valuation?

​Definition​ A 409A valuation is an assessment private companies are required by the IRS to conduct regarding the value of any equity the company issues or offers to employees. A company wants the 409A to be low, so that employees make more off options, but not so low the IRS won’t consider it reasonable.

What is a good 409A valuation?

A 409A valuation is presumed reasonable if the stock was valued within 12 months of the applicable option grant date and no material change has occurred between the valuation date and the grant date. If these requirements are met, the burden is on the IRS to prove the valuation is “grossly unreasonable.”

Is 409A valuation fair market value?

A 409A valuation is an assessment of the fair market value of a private company’s common stock by a third-party, independent appraiser. Obtaining a 409A valuation from an independent appraiser is one of the “safe harbor” methods of determining fair market value detailed in the tax code.

Why are 409A valuations so low?

A company’s 409A valuation is designed to set a current value for a single share of common stock, issued to early employees as options. Employees like to see low 409A valuations, because that means there’s conceivably more profit once it’s time to sell.

What triggers 409A?

Section 409A Compliance Requirements Section 409A triggering payment events are: The employee’s disability, death, or separation from the business; A change in control of the business; The occurrence of an unforeseeable emergency; or.

What is a 409A valuation and do you need one?

Simply, a 409A valuation is required by law. You need a 409A valuation to ensure your company is in compliance. Non-compliance can have terrible consequences. Undervaluing stock options can result in major IRS penalties and lost compensation. 3. When Do You Need a 409A Valuation?

How can I ensure my property is a 409A safe harbor?

The easiest and most common way to ensure 409A safe harbor is to have a qualified, independent valuation provider conduct the 409A analysis.

What is a material event under 409A?

Outside of a financing, whether an event is “material” varies case by case. These include acquisitions, divestitures, secondary sales of common stock, business model pivots, and missing or exceeding financial projections. If you aren’t sure, reach out to a 409A valuation provider or consult your lawyer.

What is a safe harbor valuation and do I need one?

If you obtain safe harbor, the IRS is required to accept your valuation unless it can prove it to be unreasonable. The burden of proof is placed on the IRS. Generally speaking, it’s hard to get safe harbor status unless the valuation is done by a qualified third party. 1