The Figma IPO is expected this week! As a Figma employee this could be your opportunity for life changing money. There’s a lot of excitement and expectations around the Figma IPO, so here are some things to think about and some action items for you.
Share Ownership
With your share ownership, you can turn paper gains into real dollars and you’ll have a real tax bill to go along with it.
If you have equity of any type – Restricted Stock Units (RSUs), Incentive Stock Options (ISOs), Nonqualified Stock Options (NSOs), or Early Exercised Shares—the IPO could create wealth and taxes, sadly.
So figure out what kind of equity you own by looking through your equity grant documentation.
Tax Implications
Here’s a quick summary of how different types of equity are taxed:
- RSUs – taxed as ordinary income at vesting, which is typically the IPO
- ISOs – long term capital gains if held for the required time period, but subject to Alternative Minimum Tax (AMT)
- NSOs – taxed as ordinary income at option exercise
- Early Exercised Shares – may qualify for Qualified Small Business Stock (QSBS)
Mistakes to Avoid
Most employees can get confused on RSU withholding taxes, triggering AMT on ISOs, and missing QSBS qualification during the IPO.
RSU Withholding
Your company will typically withhold 22% in taxes from your RSUs. But if you are in a higher tax bracket, like many Figma employees, you could have an unexpected 5 or 6 figure tax bill because your withholding rate was too low.
AMT on ISOs
When you exercise ISOs, you may have to pay the AMT. This all depends on your overall tax situation. It could get complicated and you can have a surprise tax bill.
Ignore QSBS
When you hold shares for 5 years and meet some other intricate requirements, you can exclude up to $10mm for federal capital gains tax purposes. Be sure to work with a professional on this one.
Lock Up Period
You may want to sell your shares right away, but not so fast my friend. You will be required to hold the shares for 180 days, as detailed in the S-1 filing.
Strategies for Figma IPO
You will be watching the stock price frequently. When it comes to the post lock up period, it’s important to take action and not just observe the price movements.
You can hold all of your shares. Alternatively, you can sell them all. Another strategy is selling some of them. What you choose to do is unique to your situation.
If you’d like to figure out how to make the most of the Figma IPO, let’s chat.