What Should I Do with the Uber Stock Lock-Up Expiration?
Have you been anxiously awaiting the Uber stock lock-up expiration? This week is sure to be an interesting time period for Uber stockholders. Almost half of which have been UNABLE to sell their Uber stock due to the lock-up period associated with Uber’s initial IPO. Are you one of those individuals? If you happen to be an employee, you are also dealing with the unique situation that occurred due to your RSUs vesting when Uber IPO’d and forced a large tax liability for 2019. If that wasn’t stressful alone, oh ya, Uber’s shares are down 33.8% as of Friday, November 1st.
I know this is an overwhelming experience. I invite you to review my strategy guide and reach out if you require 1-on-1 guidance.
The Uber Stock Lock-Up Expires on November 6th. What are you going to do?
The answer is tricky because that main question first needs to answer a few other questions in order to have clarity on the impact of your decision.
- Should you sell it all?
- Should you sell a portion of your stock?
- How would the losses work for taxes?
- Did you pay enough in taxes this year for your RSUs that vested?
Instead of answering these emotionally, which could include fear, greed, or stubbornness, let’s understand some key pieces of information. This way you can make an informed decision.
As a side note, that’s the biggest value of financial planning. Seeing everything so you have clarity and understanding. At the end of the day, it’s your decision.
Let’s Understand the Possibilities of Uber’s Stock after the Lock-Up Expiration
There has been a historical trend recently that when IPO lock-ups expire, like Uber’s will be this week, that they fall in value. I’m not saying that is going to happen, but I just want to prepare you mentally that may be the case.
Uber’s Sell Price
That being said. Let’s say it falls before you are actually able to place your sell order. Does the price change anything for you? If it’s $20 is it a no go? What is that price now before it happens? Now tell someone who will hold you accountable. If you don’t it’s kind of like those white lies we tell ourselves like, I’ll wake up early tomorrow to work out…. Who is going to give you that accountability?
What if it goes up? That would be positive, right! At what price will you sell it if it goes up before you can sell your Uber shares? You need that same accountability with this price, too.
Uber’s Sell Quantity
There is no set rule that says when you sell, you have to sell all of your Uber shares. If it is important for you to keep some Uber stock, you should explore why it’s important.
Is it because you expect it to go up in value someday?
Will it hold sentimental value? If so, will you ever be willing to sell it?
Are you afraid of missing out?
What happens if it drastically increases in value? Would it change your life in a MEANINGFUL way?
What happens if it tanks further? Would that change your life in a MEANINGFUL way?
How many future shares will you receive through RSUs and the Employee Stock Purchase Plan?
Do you have short-term goals or obligations that could use the cash flow? (see “taxes due” section below)
Uber’s RSU Tax Impact
I know it stings paying taxes on your Uber stock at a price that is significantly higher than it is today. With anything in life, it is important to focus on the factors you can control. That is what you will do moving forward.
The unique aspect that the Uber stock lock-up caused is that RSUs are taxed as earned income. Additionally, the taxes withheld at vesting likely did not cover your total tax obligation.
Your Uber RSUs likely had 22% Federal taxes withheld at vesting, but due to the significant amount of value that you recognized when your shares vested, you likely are in the Federal tax rate of 35% or maybe the highest tax bracket of 37%. That is a significant difference.
Sell Uber’s Stock at a Loss
Should you decide to sell your shares at the Uber Stock lock-up expiration, you will likely only receive minimal relief from recognizing those losses. The reason for this is because stock sales fall under the tax category of capital losses or capital gains.
Your capital loss can offset an unlimited amount of RECOGNIZED capital gains that occur in the same year.
When it comes to offsetting your earned income, the portion of your income that is unusually inflated this year due to your RSUs, you are limited to offsetting only $3,000 of income.
You are probably like what the heck do I do with the additional $90,000 is recognized losses? Those losses do not disappear into a void unless you forget about them and your tax preparer is horrible. You are able to carry those forward indefinitely until they are fully accounted for.
Offset Uber’s Stock Tax Impact
If you have not done any tax planning yet this year, there are still a few last-ditch efforts you can make to try and reduce your unique tax year due to the Uber IPO and your RSU vesting.
- Make 401(k) Contributions. If you weren’t proactive with your tax planning, you may not be able to fully utilize this option since there are only a few pay periods lefts for 2019. The 401(k) contribution limit is $19,000, which if you fell into the 37% tax bracket would reduce your federal taxes by $7,030.
- Get Married. (Probably the most original strategy that you won’t see anywhere else until it is inevitably copied). This only works if your new spouse has significantly lower income. You will want to review where you fall in tax brackets to see how big of a difference it makes for you. If you are able to move from the 35% bracket to the 24% that is a huge saving this year! Enough to pay for a wedding I’d argue. This makes the most sense if you were planning to get married in 2020 anyways. Make it legal in 2019 and celebrate in 2020.
- Make HSA Contributions. If you are eligible to make HSA contributions, this would be a good year to max out your contributions. The contributions limits are $3,500 for an individual and $7,000 for families. At the 35% tax bracket, then that is a $1,225 or $2,450 tax savings.
- Make charitable contributions. If you are charitably inclined, then there is no better time to contribute to charities. You will want to explore the tax rules on charitable deduction limitations. An advanced strategy is utilizing a donor-advised fund, which allows you to receive a tax deduction in 2019, but spread out the gifting over multiple years.
- Sell Non-Retirement Investments. This won’t reduce your current taxes but instead can make other investments you own more tax-efficient. The last few years have been great for stock investments. If you’ve built up capital gains in your non-retirement accounts, you can sell them to recognize the capital gains, but not have to pay taxes on them. That is because your Uber stock losses will offset your capital gains. This allows you to recognize those losses at a faster rate.
Uber’s RSUs Taxes Due
Even with a few of the tricks above, you likely are unable to offset the complete tax obligation from the wave of RSUs that vested in 2019.
How Will You Pay Your Taxes
A popular reason for selling at least a portion of your Uber stock with the lock-up ends is to pay for the taxes caused by your RSUs vesting in the spring. If you are set on holding onto your shares, then you’ll have to be more creative if you don’t have cash laying around.
All of your assets could be fair game, but you really want to weigh selling them or going into debt to pay your taxes versus accepting the sale of your Uber stock at a loss.
Does a Penalty Apply
If you are found to have substantially underpaid your taxes for 2019, the penalty the IRS imposes is 6%. This is not a trivial amount and only further increases your tax burden for 2019. Not sure if the penalty applies.
You must make estimated tax payments if you expect to owe more than $1,000.
Generally, you can avoid the estimated tax penalty if you owe less than $1,000 in tax after subtracting your withholdings and credits, or if you paid at least 90% of the tax for the current year, or 100% of the tax shown on the return for the prior year, whichever is smaller.
What are you going to do about the Uber Stock Lock-Up Expiration?
As you can see, there are many questions to ask yourself and many moving parts to building a cohesive strategy. If you have a strategy in place that you can confidently execute, then it shouldn’t matter what Uber’s stock does in the future. It’s also important to view this as an asset, which is really all Uber’s stock is, in the grand scheme of a complete strategy guide.
If you need someone to collaborate on a strategy that takes your financial confidence to the next level, I would love to hear from you.
Lucas Casarez is a Certified Financial Planner™ Professional serving tech professionals virtually out of Fort Collins, CO