An 83(b) election is an election made by a service provider to recognize the current income on equity compensations received for services which are subject to vesting or similar restrictions etc. For a taxpayer, filing an 83(b) election may result in significant tax savings. Most importantly, it allows founders and other shareholders to be taxed at the current fair market value of shares when they are granted.
There is an attractive option created by the Internal Revenue Code for Startup founders with 83(b) section of the Internal Revenue Code. The 83(b) election provides founders with the option to be taxed for the entire number of stocks that are subject to vesting at that present value, which might be fairly peppercorn.
By making an 83(b) election, you pay the tax when you receive the stock, not when it vests. This would be very advantageous for the growth expected company which has a potential of increased value and income. An important thing to mention is that an 83(b) election has to be filed with the IRS within 30 days of the purchase of the stock.
The clock is ticking!
Not filing an 83(b) election within 30 days of receiving shares subject to vesting may end up being a pretty unpleasant mistake. If the value of the company’s stock has gone up, the taxes can be even more than the service provider can pay.
These 30 days can go by very quickly, so, it would be a good choice to file the 83(b) election just after signing the restricted stock purchase agreement. Considering the procedures required by the U.S. Government, having a professional consultancy and service can boost your business in a safe and beneficial way. In Clemta, we provide you with the required support to successfully construct, develop and grow your company.
We are here to help. Use Clemta!