Print Divider Print Divider Branding

Consider the Section 83(b) election to save tax on restricted stock awards

08/14/2018  |  By: Paul Burris, CPA, Shareholder, Tax Services


Social Logo Social Logo Social Logo Social Logo

Are you considering Section 83(b) election to save tax?

Restricted stock is stock that’s granted subject to a substantial risk of forfeiture. Income recognition is normally deferred until the stock is no longer subject to that risk or you sell it. You then pay taxes on the stock’s fair market value at your ordinary-income rate.

Advantages of Section 83(b)

Make a Section 83(b) election within 30 days after receiving to recognize ordinary income. This election can be beneficial if the stock is likely to appreciate significantly. Why? Because it allows you to convert future appreciation from ordinary income to long-term capital gains income and defer it until the stock is sold.

Potential Disadvantages of Section 83(b)

  • You must prepay tax in the current year — which also could push you into a higher income tax bracket or trigger or increase the additional 0.9% Medicare tax.
  • Any taxes you pay because of the election can’t be refunded if you eventually forfeit the stock or sell it at a decreased value.

If you’ve recently been awarded restricted stock or expect to be awarded such stock this year, work with us to determine whether the Section 83(b) election is appropriate for you. 

Are you ready to start a conversation?