Have you issued or received stock? You may need fill out an 83(b) election form.
An 83(b) is one of many tax-related forms entrepreneurs and small business owners use. Taking advantage of the IRS 83(b) election can help minimize your tax outlay. The form is relatively straightforward if you know what needs to be included.
Bizee’s customizable 83(b) Election Form template will help simplify it all for you, so you’ll be able to send it off to the Internal Revenue Service (IRS) in no time.
An 83(b) election form is sent to the IRS and informs them that you’d like to be taxed on your equity on the date it was granted to you instead of the date it vests. The grant date is considered to be when you received the company stock, while vesting means that you have gained ownership of the share or stock, which is usually achieved after a certain period of time.
The form and related documents must be sent to the IRS within 30 days after the issuing of restricted shares or stock.
The form effectively indicates that you wish to pre-pay your tax liability. Then, if and when you decide to sell the shares for profit or gain in the future, you’d only be liable for capital gains taxes instead of the much higher income tax rate. This is how the form can minimize your tax outlay, if it’s right for you.
The 83(b) election form is generally used by both startup founders and entrepreneurs and some employees of companies who have been rewarded with restricted stock. The form is applicable only for restricted stock that is subject to vesting, not fully vested stock, which is taxed at the time of the grant.
It’s common for company founders to be compensated with restricted stock, which are shares that are subject to conditions such as vesting or forfeiture (leaving the company resulting in loss of shares). The benefit of restricted stock is that it could significantly increase in value over time (at least, you hope) and it allows you to shift your tax code to capital gains tax instead of income tax.
While filing an 83(b) election form is generally considered a positive step in saving on taxes, there are some significant pros and cons to think about.
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Filing an 83(b) election form can be beneficial if you’re compensated with restricted stock. It’s a straightforward form to fill out and can potentially lower your tax liability in the long term. Peruse more of Bizee’s Business Resources & Tools center to empower your business and grow with ease.
