Hunzinger Accounting & Financial Solutions

To 83(b) or not to 83(b)? That’s a good question.

You’ve heard of an 83(b) election. Maybe your friends are doing it, maybe you heard about it on a podcast or maybe you heard about the time someone forgot to file it and got screwed, but what exactly is an 83(b) election?

It all comes down to vesting stock options. Many times when employees are awarded stock options, they vest over several years to entice the employee to stay with the company. Generally you would only pay tax on receiving those options once they vest, because that’s when you have access to them, but an 83(b) lets you pay tax as soon as you are awarded the options. Why would you want to pay tax sooner than you have to? Good question!

When To file an 83(b)

Congratulations on the new gig at Pied Piper! Since it’s still starting up, they can’t offer you as much salary but they did offer you stock options that vest over the next 2 years. Hopefully by then you will have made the world a better place with your innovative file transfer system and be Elon Musk rich, but until then the stock isn’t worth much.

File the 83(b) and pay the tax on the receipt of those stock options now. Since the valuation is so low you’ll pay less tax than you would as the stock price rises.

When Not to file an 83(b)

Congratulations on that new gig at Hooli. You also got stock options that vest over 2 years, but since Hooli is already publicly traded you have a pretty good idea what they’re worth. There is a hot new startup that just invented a new file transfer system that’s shaping up to do some real damage to Hooli’s market share.

Don’t file the 83(b). If you’re expecting the stock to decline from it’s current value, just wait and pay the tax as the stock vests over the next 2 years. Not only do you not have to come up with the cash right away, but if the stock is headed downhill, you’ll also pay tax on the lower future value.

Either way, touch base with your accountant to figure out which is the best option for you. If you want to file the 83(b) you only have 30 days from the award date!

< Back