The 83 b election applies to equity that is subject to vesting, and it alerts the Internal Revenue Service IRS to tax the elector for the ownership at the time it of granting, rather than at the time of stock vesting. In effect, an 83 b election means that you pre-pay your tax liability on a low valuation, assuming the equity value increases in the following years. However, if the value of the company instead declines consistently and continuously, this tax strategy would ultimately mean that you overpaid in taxes by pre-paying on higher equity valuation. Typically, when a founder or employee receives compensation of equity in a company, the stake is subject to income tax according to its value.
Incoming and Outgoing Correspondence/Letters | Internal Revenue Service
It can be an excellent option for people receiving equity subject to vesting often in the form of restricted stock , as it allows you to be taxed at the time of grant instead of at vesting when the equity becomes transferrable , which can decrease your taxable income and allow you to keep a larger portion of your profits — woohoo! If you have questions about an 83 b election and would like to speak to an experienced Business Attorney , reach out to Semanchik Law Group for a free consultation. In short, an 83 b election is a formal letter you send to the IRS explaining that you want to be taxed on your equity before it vests, rather than after. We should note that the 83 b election is only for stock that is subject to vesting, since stock that is already fully vested will be taxed at the time of the grant.
By Thelma Sample on Jan 4, in Taxes 0 comments. If you have received a written notice from the IRS requesting an adjustment to a recent tax return, requesting additional documentation for your return, or if the IRS sends notice that your payment is late, you need to know how to respond appropriately. Keeping the lines of communication open is key to a successful resolution of nearly all tax issues. While putting your response in writing might sound like a daunting task, it is very likely to be the best and most effective way to respond to the IRS.
Draft a letter to the IRS with your name, address, social security number, and the number and value of equity shares you are either accepting or exercising early. Print and sign four original copies, with a wet ink signature applied by hand. Send two copies, along with a cover letter and self-addressed return envelope, to the IRS via certified mail, return receipt requested. Send one of the remaining copies to your employer.