Strategy 07
Equity Tax Timing, Section 83(b) Election
Timing-of-taxation election on restricted property and equity compensation under IRC §83(b).
Discuss this strategyWhat it is
Under Internal Revenue Code §83, the recipient of property in connection with the performance of services normally recognizes ordinary income when the property vests. A §83(b) election lets the recipient instead recognize income at the time of grant, based on the fair market value at that point, less any amount paid. This starts the long-term capital gain holding period immediately and locks in the ordinary income amount at the (typically lower) grant value, but it must be filed with the IRS within 30 days of the grant.
Who it is for
Founders receiving restricted founders stock, early employees receiving restricted stock or vesting early-exercised options, and recipients of profits interests where the choice is meaningful at the grant date.
Related strategies
Three strategies that travel with this one.
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Qualified Small Business Stock, Section 1202
Qualified small business stock gain exclusion under Internal Revenue Code §1202.
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Ordinary Loss Treatment, Section 1244
Ordinary loss treatment for losses on qualifying small business stock.
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Entity Optimization
Structuring business entities (S-corp, C-corp, LLC, partnership) for optimal tax treatment.
Next step
See whether this strategy fits your facts and circumstances.
The first call is fact finding only. We tell you whether this strategy belongs in your plan, and what would have to be true for it to apply.
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