Tax Tip #207
Congratulations to Those Receiving an 83(b) Election
A Section 83(b) election is a provision in the Internal Revenue Code that allows taxpayers who receive some sort of stock options to elect and include the fair market value (FMV) of the property at the time it was granted as taxable income in the year of receipt. The election allows taxpayers who receive equity compensation to pay taxes on the FMV at the time of granting, rather than at the time of stock vesting.
Why pay tax now? Belief. Belief that the options will increase in value which means less tax is paid.
Example: 100 shares are awarded at $.001 per share. Taxpayer makes the 83(b) election and has $1 of ordinary income on his current year tax return. Assuming the shares increase a few years later to $10 per share and the taxpayer sells the shares, there will be a long-term capital gain of $999.
Section 83(b) elections must be submitted to the IRS within 30 days after issuance, so do not hesitate to reach out to a Goldstein & Loggia team member with any questions before time elapses on a potential tax savings opportunity.
