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4 Secrets of the Tax Magician: The 83(b) Election

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Last month I discussed the 83(b) election for income tax purposes, and how it can be used to entertain and mystify your key employees. A proper 83(b) election has various requirements imposed by the IRS, and unlike proverbial horseshoes and hand grenades, close doesn’t count.

Here are the key procedural matters to consider when an employee makes an 83(b) election on the award of restricted stock:

  1. The employee must file the 83(b) election with the IRS within 30 days of receipt of the restricted stock.
  2. The employee actually has to file the 83(b) election form with the IRS twice, once on its own and again with his or her income tax return.
  3. The 83(b) election is basically (with very minor exception) irrevocable, meaning that if the stock never vests or the company value goes down, the employee has made a poor choice from a tax perspective and can’t go back.
  4. There is no specified form for an 83(b) election published by the IRS. Instead, check out helpful resources like this, or better yet just spend a few hundred dollars to have a CPA or attorney prepare and file the form for you.

The 83(b) election is full of value but also the possibility of disaster; choose wisely.

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About the Author

Clint Costa is an attorney and CPA with the Chicago law firm of Harrison & Held, LLP, working with startups, entrepreneurs, and privately held companies on all manner of official-sounding legal and tax matters. Reach Clint at ccosta@harrisonheld.com or (312) 803-7104.

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