Learn about the 83(b) election and how acting fast can save you thousands in taxes. Discover tips and strategies from Integrated CPA to simplify equity compensation planning.
Demystifying the 83(b) Election – Act Fast
By: Author
Date published
Category: Crypto
Welcome to Day 3 of #100DaysofTaxes! Today, we’re diving into the 83(b) election, a critical tax decision for anyone receiving restricted stock or equity grants as part of their compensation package.
What Is the 83(b) Election?
The 83(b) election allows you to pay taxes upfront on the current value of your equity when it’s granted, rather than when it vests (when it could be worth significantly more). This proactive approach can save you thousands in taxes if your company grows or your shares increase in value over time.
The 30-Day Rule – No Extensions!
One of the most critical aspects of the 83(b) election is timing. You have only 30 days from the date your equity is granted to file the election with the IRS. There are no extensions for this deadline, so missing it could result in:
- Paying taxes on the vested value of your equity—likely much higher than the initial grant value.
- A higher overall tax rate, especially if your equity gains significant value.
Pro Tip: Use the IRS’s newly issued Form 15620 to file your 83(b) election. It simplifies the process, but acting quickly is essential.
Why Timing Matters
Filing your 83(b) election promptly doesn’t just minimize taxes on your equity—it can also set you up for additional benefits, like the Qualified Small Business Stock (QSBS) exclusion. This exclusion can potentially allow for tax-free gains on equity growth when you sell.
Stay tuned for tomorrow’s post, where we’ll explore how QSBS benefits tie into this strategy for maximizing your equity’s tax potential.
Key Takeaways
- Act Immediately: File your 83(b) election within 30 days of receiving your equity to lock in the lower tax rate.
- Consult a Tax Professional: Mistakes or delays in filing can be costly. Ensure your election is prepared and submitted correctly.
- Think Long-Term: A well-executed 83(b) election can lead to substantial tax savings in the future, especially if your company grows.
Let’s Simplify Your Equity Tax Strategy
Navigating tax decisions around equity compensation can be overwhelming, but you don’t have to go it alone. At Integrated CPA, we help startup employees and founders make informed choices that align with their long-term financial goals.
💼 Contact us today to discuss your 83(b) election and other strategies to maximize your tax savings.
Stay tuned for Day 4 of #100DaysofTaxes, where we’ll uncover the benefits of QSBS and how it ties into your equity strategy!
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