Taxable Now or When Sold??
Tom: 100% shareholder in an S-Corp
Dick: Just hired by Tom as a developer, and given 20% ownership in the company. All legal paper work has been filed. Dick is now a 20% owner and will do all the software development as an employee, and like Tom, will receive his K-1 every year.
Question - is Dick's 20% stock value taxable today, right now, even though Dick and Tom have no intention of selling the company for years to come? I'm thinking no, because all he owns right now is "rights" to vote and/or sell. If and when they do sell the company, then, and only then, will he pay tax on his ownership. Am I correct?