Section 83(b) Election an Option for Tax Clients

Are you familiar with Section 83(b) of the tax code? It provides a method to save your clients money on their tax bill should they own stock options through their employer.

With an election made under Section 83(b), the taxpayer agrees to pay taxes on the current value of shares after exercising the option, even if the taxpayer doesn't have full ownership of the shares now because they are restricted. Restricted shares are shares of stock that cannot be sold right away due to either vesting rules or because there is a lock up period in effect.

Using the election will usually generate a current tax liability, unless the current value of the shares is only slightly more than option price or the person has an incentive stock option instead of a nonqualified stock option.

The advantage to claiming this election is that the election qualifies the person for a lower capital gains tax on any appreciation between now and when the person sells - the taxpayer could owe the government only 20 percent of the profit versus a maximum of 39.6 percent without taking the election.

You may like these other stories...

Legislation coming out of Washington just might reduce homeowners' burden for disaster insurance. It's a topic very much on everyone's minds since the mudslide in Oso, Washington. The loss of human life was...
Divorce is hard, and the IRS isn't going to make it any easier. The IRS generally says "no" to tax deductions that might ease the pain of divorce. In certain circumstances, however, you might be able to salvage...
IRS chief: New rule on the way for tax-exempt groupsIRS Commissioner John Koskinen told the USA Today on Monday that the agency will likely rewrite a proposed rule regulating the political activities of nonprofit groups to...

Upcoming CPE Webinars

Apr 22
Is everyone at your organization meeting your client service expectations? Let client service expert, Kristen Rampe, CPA help you establish a reputation of top-tier service in every facet of your firm during this one hour webinar.
Apr 24
In this session Excel expert David Ringstrom, CPA introduces you to a powerful but underutilized macro feature in Excel.
Apr 25
This material focuses on the principles of accounting for non-profit organizations' revenues. It will include discussions of revenue recognition for cash and non-cash contributions as well as other revenues commonly received by non-profit organizations.
Apr 30
During the second session of a four-part series on Individual Leadership, the focus will be on time management- a critical success factor for effective leadership. Each person has 24 hours of time to spend each day; the key is making wise investments and knowing what investments yield the greatest return.