File 83(b) Election

Want to file form 83(b) election? Eqvista is here to help you!

The 83(b) election is an Internal Revenue Code (IRC) provision that gives an employee or founder of a startup the ability to pay taxes on the complete fair market value of the restricted stock at the point of granting.

83(b) Election

In short, the founder or employee can make an election to pay taxes on a portion of the fair market value of their restricted stock. The employee or founder is required to pay taxes at the time of grant rather than when the stock is later vested, awarded, sold, or otherwise transferred.

What is an 83(b) Election?

By making an 83(b) election, you are requesting that the IRS recognize income and apply income taxes to the acquisition of company stock when it vests and not later at the time of acquisition. The grant date is when an employee receives a company stock or stock option.

Vesting means that an employee has actually acquired the ownership of the company stock or stock options, usually upon completion of a specified period of employment. Vesting makes an employee eligible to gain access and control of the company stock or stock option. Therefore, 83(b) election is a mechanism that allows a stockholder to pay taxes on the restricted stock at the grant date.

When should I file 83(b) Election?

The standard practice is to file the 83(b) election when you receive restricted stock or stock options, not when you actually vest. Typically, the timeframe to file the 83(b) election is within 30 days of the grant date. In the case of failing to file the 83(b) election, you will be required to pay taxes on the value of the stock at vesting. You must remember that the process is irreversible; once the 83(b) election is filed, no change can take place.

Benefits of 83(b) Election

There are benefits of 83(b) election for an employee or even employer. In particular, Section 83(b) of the Internal Revenue Code permits founders to accelerate the determination of taxable income from an allocation or purchase of restricted shares to the date they were granted, rather than the date in which the shares were acquired.

If restricted shares are purchased for an amount equal to their fair market value, an 83(b) election results in no income being recognized on the purchase. In addition, an 83(b) election defers the beginning of the period holding long-term capital gains for one year, which often results in preferential capital gains rather than ordinary tax treatment at the time of sale (long-term capital gains tax rates are 0%, 15%, and 20% for taxpayers).

In simple terms, an 83(b) election can result in tax savings if put under the right circumstances.

Filing 83(b) Election

By following a few 83(b) filing instructions, it will be much easier. Given below are the steps to be followed:

What is the 83(b) filing process?

  • Complete a Section 83(b) election letter by filing the information such as personal identifying information, number, and type of shares of which company, date of when you received or purchased, and fair market value of the shares on the date received or purchased
  • You should mail the completed letter to the IRS within 30 days of your grant date.
  • You must mail a copy of the completed letter to your employer.

Tip: Keep one copy of the completed and filed letter for your records!

Consequences of not filing 83(b) Election

If you fail to file 83(b) election, the IRS will apply the default Section 83(b) of the Internal Revenue Code regulations by recognizing income and applying income taxes on the fair market value of the stock at vesting, not when it was granted. This may result in substantial tax liabilities and penalties.

Eqvista Makes it Easier to file 83(b) Election

To make your work easier, Eqvista is here to help you file your 83(b) form. We have the most knowledgeable, certified, and experts who will help you eliminate the stress and difficulties associated with filing an 83(b) election. You can trust our experts who will guide you through the entire 83(b) filing process and offer you proficient support in the form of guidance, assistance, and other relevant help that they can provide.

Pricing starts at $150

Eqvista’s 83(b) Election filing starts at $150, which includes consultation and form filing by our expert team. For more information or to schedule an appointment, contact us today.

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