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mickk
New Member

Where to enter 83(b) information

I have an 83(b) election.  Where do I put this information in?
1 Best answer

Accepted Solutions
maglib
Level 10

Where to enter 83(b) information

The IRS eliminated the need to attach a copy of the 83(b) election to the recipient’s tax return to property received on or after January 1, 2015.  Your must file this election though with your employer and the IRS. The employer though is required to maintain and file this election for you and properly report the income as ordinary income on your w-2 box 1 or 1099Misc if you are an independent contractor box 7 of your 1099Misc.

http://www.taxlawroundup.com/2015/07/irs-eliminates-requirement-to-file-copy-of-section-83b-election...

No need to attach a hardcopy of the 83(b) election to your tax return though.

You still MUST file the 83(b) election within 30 days with the IRS, it is just NOT attached to your tax return.

Please note though that the amounts should be included in your w-2 as income correctly or in box 7 of your 1099Misc and it is considered compensation income and subject to SE taxes.

Assuming you paid nothing for your restricted stock, you will be taxed on the value of your restricted stock as determined at grant (if a Section 83(b) election is filed), or at vesting (if no Section 83(b) election is filed), in each case at the applicable ordinary income tax rate.  When you later sell your stock, assuming it’s been more than one year from the date of grant (if a Section 83(b) election is filed), or more than one year from the date of vesting (if no Section 83(b) election is filed), the additional gain will be taxed at the applicable long-term capital gains rate.  Because the long-term capital gains rate will be lower, the goal here is to get as much of your gain as possible taxed using that rate, rather than the ordinary income tax rate.

If you receive restricted stock worth a nominal amount, it normally makes sense to file one.  However, what if instead of receiving 10,000 shares of restricted stock worth $.01 per share, you received 10,000 shares of restricted stock worth $1.00 per share?  Filing a tax code Section 83(b) election would immediately cause you  thousands of dollars of tax.  And if the company subsequently fails, and in particular if it fails before your stock vests, you likely would have been economically better off to not have filed a Section 83(b) election.

You Can’t Make An 83(b) Election With Respect To A Stock Option

It is a common misconception, but a Section 83(b) election generally cannot be made with respect to the receipt of a private company stock option.  You must exercise the option first and acquire the stock before you can make a Section 83(b) election, and you would only make a Section 83(b) election in that instance if you exercised the option and acquired unvested stock (if the stock acquired on exercise of the stock option was vested, there would be no reason to make a Section 83(b) election).

Another common misconception is that Section 83 does not apply to restricted stock that is purchased at fair market value.  This is not true.  Section 83 applies even to stock that has been purchased at fair market value, if the stock is subject to a substantial risk of forfeiture and received in connection with the performance of services.  See this case, Alves vs. Commisioner.

An 83(b) election has to be filed with the IRS within 30 days of receipt of the property, a copy has to be filed with the tax return of the person making the election, and a copy must be provided to the company.

If you are fully vested, the shares are not subject to a risk under 83b, then no 83b election is required. But you should confirm your documents don’t subject your shares to a risk of forfeiture under 83b with your lawyer or whoever prepared the documents. This does not constitute legal advice.

https://www.govinfo.gov/content/pkg/CFR-2008-title26-vol2/xml/CFR-2008-title26-vol2-sec1-83-2.xml

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22 Replies
maglib
Level 10

Where to enter 83(b) information

The IRS eliminated the need to attach a copy of the 83(b) election to the recipient’s tax return to property received on or after January 1, 2015.  Your must file this election though with your employer and the IRS. The employer though is required to maintain and file this election for you and properly report the income as ordinary income on your w-2 box 1 or 1099Misc if you are an independent contractor box 7 of your 1099Misc.

http://www.taxlawroundup.com/2015/07/irs-eliminates-requirement-to-file-copy-of-section-83b-election...

No need to attach a hardcopy of the 83(b) election to your tax return though.

You still MUST file the 83(b) election within 30 days with the IRS, it is just NOT attached to your tax return.

Please note though that the amounts should be included in your w-2 as income correctly or in box 7 of your 1099Misc and it is considered compensation income and subject to SE taxes.

Assuming you paid nothing for your restricted stock, you will be taxed on the value of your restricted stock as determined at grant (if a Section 83(b) election is filed), or at vesting (if no Section 83(b) election is filed), in each case at the applicable ordinary income tax rate.  When you later sell your stock, assuming it’s been more than one year from the date of grant (if a Section 83(b) election is filed), or more than one year from the date of vesting (if no Section 83(b) election is filed), the additional gain will be taxed at the applicable long-term capital gains rate.  Because the long-term capital gains rate will be lower, the goal here is to get as much of your gain as possible taxed using that rate, rather than the ordinary income tax rate.

If you receive restricted stock worth a nominal amount, it normally makes sense to file one.  However, what if instead of receiving 10,000 shares of restricted stock worth $.01 per share, you received 10,000 shares of restricted stock worth $1.00 per share?  Filing a tax code Section 83(b) election would immediately cause you  thousands of dollars of tax.  And if the company subsequently fails, and in particular if it fails before your stock vests, you likely would have been economically better off to not have filed a Section 83(b) election.

You Can’t Make An 83(b) Election With Respect To A Stock Option

It is a common misconception, but a Section 83(b) election generally cannot be made with respect to the receipt of a private company stock option.  You must exercise the option first and acquire the stock before you can make a Section 83(b) election, and you would only make a Section 83(b) election in that instance if you exercised the option and acquired unvested stock (if the stock acquired on exercise of the stock option was vested, there would be no reason to make a Section 83(b) election).

Another common misconception is that Section 83 does not apply to restricted stock that is purchased at fair market value.  This is not true.  Section 83 applies even to stock that has been purchased at fair market value, if the stock is subject to a substantial risk of forfeiture and received in connection with the performance of services.  See this case, Alves vs. Commisioner.

An 83(b) election has to be filed with the IRS within 30 days of receipt of the property, a copy has to be filed with the tax return of the person making the election, and a copy must be provided to the company.

If you are fully vested, the shares are not subject to a risk under 83b, then no 83b election is required. But you should confirm your documents don’t subject your shares to a risk of forfeiture under 83b with your lawyer or whoever prepared the documents. This does not constitute legal advice.

https://www.govinfo.gov/content/pkg/CFR-2008-title26-vol2/xml/CFR-2008-title26-vol2-sec1-83-2.xml

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josh-noe
New Member

Where to enter 83(b) information

"Please note though that the amounts should be included in your w-2 as income correctly."

OK but where? What if I only have a 1099?
maglib
Level 10

Where to enter 83(b) information

a 1099-b is the proceeds from the Broker.  Your employer should have issued you a w-2 for the ordinary income.
josh-noe
New Member

Where to enter 83(b) information

I was referring to a 1099, not a 1099-b. I'm an independent contractor, so I typically put all my income on a 1099. This year, I'm also co-founder of a startup with a 83(b) election for a small amount (about $100). I'm trying to figure out where in TurborTax to put the income from this 83(b) election?
suzyquzy
Level 2

Where to enter 83(b) information

Same place as cash income - Schedule C
maglib
Level 10

Where to enter 83(b) information

Non-employee compensation as a contractor should be reported in box 7 for Form 1099-MISC from the company if you are an independent contractor.


There are specific rules and elections for valuing, deducting and timing of restrictive stock, click for IRS publication 525, Taxable and Nontaxable Income <a rel="nofollow" target="_blank" href="https://www.irs.gov/pub/irs-pdf/p525.pdf">https://www.irs.gov/pub/irs-pdf/p525.pdf</a>


An 83(b) election must be maintained by the employer or company for proper reporting.YOU MUST STILL FILE one WITH THE IRS.


In your case though you are an owner it appears of the company as cofounder not an independent contractor.  Very different question. You may want to post a new, detailed question regarding how this gets reported to you.  I know that  a Section 83(b) election generally cannot be made with respect to the receipt of a private company stock option.  You must exercise the option first and acquire the stock before you can make a Section 83(b) election, and you would only make a Section 83(b) election in that instance if you exercised the option and acquired unvested stock (if the stock acquired on exercise of the stock option was vested, there would be no reason to make a Section 83(b) election).
josh-noe
New Member

Where to enter 83(b) information

Thank you. My fellow co-founder thinks we can forgo issuing a 1099-MISC for this, and instead I can report it on my 1040 on line 21. Is this also a valid option?
maglib
Level 10

Where to enter 83(b) information

In your scenario of a startup, you must still file it yourself.  The startup company is required to account for this correctly to you and report the income to the IRS.  The IRS could fine the company for not reporting correctly.  The fact your are a founder and also claiming 1099Misc for the same company can also be a tax concern due to the nature of the relationship.  You should speak to a tax advisor and ensure proper reporting. TT does not support 83(b) reporting as it's an election that you make not an income tax form.
josh-noe
New Member

Where to enter 83(b) information

Thank you. I'm not claiming 1099Misc for this startup for which I'm a founder. I'm claiming 1099Misc for another company I contract to.

We've already filed the Section 83(b) election with the IRS, I just need to report the income from it.

I'll post a separate question for this.
suzyquzy
Level 2

Where to enter 83(b) information

Line 21 Other income is fine
maglib
Level 10

Where to enter 83(b) information

@josh.noe  that company should have sent you a 1099Misc for reporting too...  I'm sorry about the confusion.  But if the amount was under 400 maybe then it was not required to be filed.  It should be reported in TT as if you didn't get a 1099Misc then and it's considered self employment income too and subject to SE taxes as it's ordinary income as it's related to work you performed.  Not line 21.
suzyquzy
Level 2

Where to enter 83(b) information

An 83(b) election means you are electing to report something now that you have not become entitled to yet. No 1099-MISC since no payment was actually made.
maglib
Level 10

Where to enter 83(b) information

you’d like to be taxed on your equity, such as shares of restricted stock, on the date the equity was granted to you rather than on the date the equity vests. It’s important to note here that Section 83(b) elections are applicable only for stock that is subject to vesting, since grants of fully vested stock will be taxed at the time of the grant.  Put simply, it accelerates your ordinary income tax. It is considered compensation income and yes it is reportable as compensation paid to your employee or contractor. 83(b) is electing to report the ordinary income now u so the long term income is considered capital gains. It has its drawbacks if the company fails, but is best election if you thing long term there will be gains.
If you don't report the income on your return, even if de-minimis, it will be a failed 83(b) election and the IRS could require you to pay tax at vest.  It is best to report every dollar.
josh-noe
New Member

Where to enter 83(b) information

"83(b) is electing to report the ordinary income now upon grant so the long term income is considered capital gains."

To be clear, we're not vesting yet. Does this make a difference?
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