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.
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.
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
An 83(b) election can be beneficial for both employees and employers. Filing 83(b) will possibly reduce the tax burden initially, especially if there is an increase in value of restricted stock and stock options in coming years. It can minimize tax liability if the amount of income reported is small at the time of granting.
Filing an 83(b) election makes sense if the value of the restricted stock is expected to increase in the future. In simple terms, an 83(b) election can lead to tax savings if it is done 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?
The section 83(b) filing process involves following steps:
- 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.
It’s important to inquire about the appropriate IRS address for filing the 83(b) Election, as it may vary depending on the location.
Deadline for Filing 83(b)Election
It is important to note that if you have been granted restricted stock, you must file a Section 83(b) election within 30 days of the grant date which cannot be extended. This deadline includes weekends and holidays. If the 30th day falls on a weekend or a holiday, the deadline is extended to the next business day. Therefore, it is of utmost importance to make sure that you submit the election to the IRS in a timely manner.
Consequences of not filing 83(b) Election
Failing to file Section 83(b) election within 30 days may result in adverse tax implications. Tax liabilities are assessed based on the difference between the fair market value of an individual’s vested stock and the purchase price. This discrepancy often results in higher tax assessments and if the stock’s value increases from the granting date to the vesting date, the recipient may encounter a larger tax obligation.
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