File your 83(b) election.
With a Real Attorney and CPA.
100% Online.
Get started. Flat-fee pricing.
Starting at $895 for a limited time.
Prices will soon increase.
A Section 83(b) election is a formal legal notice you send to the Internal Revenue Service (IRS) indicating your preference to be taxed on your equity in a corporation, such as shares of restricted stock, at the time it is granted to you rather than when it vests.
It must be made at a specific time, in a specific format, contain specific information, and be delivered to a specific place.
Essentially, this election accelerates the recognition of your ordinary income tax but potentially saves you a substantial amount of money in the long-run. It's important to note that Section 83(b) elections are only relevant for stock that is subject to vesting, as fully vested stock is taxed at the time of the grant, and further, the election must be filed within 30 days of grant without exception.
— Prof. Chad D. Cummings, Esq., CPA (emphasis added)
More specifically, The Law Office of Chad D. Cummings PLLC, serving clients throughout the states of Florida and Texas, prepares and files the requisite paperwork with the Federal Internal Revenue Service (IRS) to effectuate the election.
It is a common misconception that it is the corporation's responsibility or choice to file an 83(b) election on employees' behalf (it is not) or that the corporation will simply "take care of it" (they will not).
It is also important to realize that, in most cases, a corporation's attorneys represent the corporation as a whole, not individual employees. This means that attorneys are legally required, in most circumstances, to put the needs of the corporation first.
Some other misconceptions include:
- 1. LLCs or partnerships can issue stock, which might then be subject to an 83(b) election. This is false, because only corporations issue shares of stock. If you have been given "shares" of "stock" in an LLC, you need to consult with an attorney immediately.
- 2. All employees should always elect 83(b) treatment. This is false, because while there are possible, significant benefits of making this election, there are also drawbacks and risks which must be considered on a case-by-case basis. There is no one-size-fits-all approach here.
- 3. LegalZoom, Rocket Lawyer, Stripe Atlas, financial advisors, and wealth managers can advise and counsel employees who are considering whether to make an 83(b) election. This is false, because those entities are not law firms and are prohibited by law from doing so. Only attorneys are permitted to give legal advice, and the unauthorized practice of law is a felony in many jurisdictions.
- 4. There is plenty of time to make an 83(b) election. This is false. The election must be postmarked within 30 calendar days (not business days) of grant (not receipt of the paperwork from your employer). This means, in practice, the decision usually must be made in a matter of days, not weeks.
- 5. The 83(b) election is reversible. This is false, because in all but the most exceptional cases, the election is permanent. You should consult with an attorney before deciding whether to commit to this election. Click here to set up a free meeting with our firm's Attorney-CPA. There is no cost nor obligation
For these reasons and more, it is vital that employees or stakeholders who have purchased or received (been granted) restricted, unvested stock in a corporation consult and retain their own tax and legal counsel rather than erroneously waiting on the corporation to "handle it."
Admitted to The Florida Bar and the State Bar of Texas—Attorney and Counselor at Law
and
Licensed by the Florida Division of Certified Public Accounting and the Texas State Board of Public Accountancy as a Certified Public Accountant
Meet Chad
/Attorney and CPA
I am an attorney and Certified Public Accountant serving Florida and Texas.
Previously, I served in operations and finance with the world’s largest accounting firm (PricewaterhouseCoopers), airline (American Airlines), and bank (JPMorgan Chase & Co.). I have also created and advised a variety of start-up ventures.
I am a member of The Florida Bar and the State Bar of Texas, and I hold active CPA licensure in both of those jurisdictions.
I also hold undergraduate (B.B.A.) and graduate (M.S.) degrees in accounting and taxation, respectively, from one of the premier universities in Texas. I earned my Juris Doctor (J.D.) and Master of Laws (LL.M.) degrees from Florida law schools. I also hold a variety of other accounting, tax, and finance credentials which I apply in my law practice for the benefit of my clients.
My practice emphasizes, but is not limited to, the law as it intersects high-growth start-ups and businesses and their owners. Clients appreciate the confluence of my business acumen from my career before law, my technical accounting and financial knowledge, and the legal insights and expertise I wield as an attorney. I live and work in Naples, Florida and represent clients throughout the great states of Florida and Texas.
If I can be of assistance, please click here to set up a free meeting.
As the expression goes, if you think hiring a professional is expensive, wait until you hire an amateur. Do not make the costly mistake of hiring an offshore, fly-by-night, and possibly illegal online "service" to file your election. Where will they be when something goes wrong? . . . Hire an experienced attorney and CPA, knowing you are working with a credentialed professional with a brick-and-mortar office.
— Prof. Chad D. Cummings, CPA, Esq. (emphasis added)
As seen in
Client Testimonials
“I hired Mr. Cummings to litigate for me. I hired a company to perform a job and it became a nightmare. . . . He very quickly acted and got the job done quickly for me. He made it happen in a few weeks and I had been waiting over a year. He looked out of me and what was best for me as his client. To me that is what you want when looking for a lawyer to represent you. I will be referring clients and friends to him.“
Client in Naples, Florida
“The much maligned legal profession got a definite lift when Chad decided to take up law. He brings a sharp mind, commonsense thinking and focus on details that allow any client to breathe a sigh of relief. His response time is fast, accurate and explanations are clear and concise. You won’t be left wondering “what did he say” after a conversation about the legal ramifications and available options. We are excited to share that Chad represents our firm. You will be too.“
Client in Dallas, Texas
“Chad is extremely detailed, very thorough, and professional. Highly recommended and will help you get the results. He was able to get us a very favorable settlement . . . he made a very detailed case which made the difference.“
Client in Naples, Florida
“Chad helped me relocate my small business from Texas to Florida and I could not have asked for a better person to do it than Chad. His service was PERFECTION from start to finish. He is clear and transparent with the fee and always punctual, detailed, and prompt with his answers for any question I had along the way. He is such a trustworthy person. I highly recommend Chad for any business-related case and for future business, I will absolutely come back to him without thinking twice.“
Client in Miami, Florida
“Chad is a kind and caring attorney who works tirelessly to help his clients. He is competent and thorough. He makes sure everything is up to date with current laws and he explains everything in a way so you can understand. I highly recommend him for your legal work.“
Client in Naples, Florida
“Chad advised me on a few business formation issues earlier this year, and I could not be more appreciative of his services. His real world experience in the business world coupled with his grasp of the law make for an invaluable advisor. I highly recommend his services.“
Client in Tampa, Florida
How It Works
1. Submit your election and securely pay in under five minutes.
⇣
2. Schedule your included telephone consultation with our Attorney-CPA who will address your questions.
⇣
3. Our licensed Attorney-CPA reviews for accuracy and completeness and submits your election and cover letter to the IRS, usually within 24 hours, all via trackable Certified Mail. Our office handles the snail mail for you.
⇣
4. The IRS reviews your election, and if accepted: (1) locks in the valuation of your stock as of the date of grant; (2) starts the one-year clock for preferred capital gains treatment; and (3) commences the five-year qualified small business stock holding period (if applicable).
Note: A Section 83(b) election must be filed no later than 30 days after the grant date per 26 C.F.R. § 1.83-2(b). Also, except in very rare circumstances, an election is permanent.
Therefore, time is of the essence in deciding whether to make an election and in actually electing section 83(b) treatment.
Our Attorney-CPA is well-equipped to handle myriad small business and start-up tax and legal matters. Be sure to take advantage of the included 15 minute telephone consultation.
At The Law Office of Chad D. Cummings PLLC, we have the unique combination of legal and accounting expertise, and we’re ready to help you navigate the complex process of filing your section 83(b) election. Our team, led by a professional who has Fortune 100 experience and who is dually-licensed as a certified public accountant (CPA) and an attorney, is prepared to handle the intricate financial and legal concerns involved in such a move.
Many founders approach us with inquiries about making a Section 83(b) Election. They often hear in startup communities that these elections need to be filed, but might not fully understand when it is appropriate to do so or what issue the Section 83(b) election addresses, not to mention the serious benefits and risks.
What is a Section 83(b) Election?
A Section 83(b) election is a formal legal notice you send to the Internal Revenue Service (IRS) indicating your preference to be taxed on your equity, usually restricted shares of stock, at the time it is granted to you rather than when it vests. Essentially, it accelerates your ordinary income tax. Most people scratch their heads at this point and ask the question: "Why would I want to pay tax sooner than necessary?"
Read on for the answer, and understand that Section 83(b) elections are relevant only for stock that is: (1) issued by a corporation (LLCs and partnerships do not issue stock, contrary to what you might have heard); and (2) subject to vesting, as fully vested stock is taxed at the time of the grant. There are many other pros and cons to making the election which are highlighted below.
Federal Income Tax on Section 83(b) Elections
For some basic tax background, different types of tax rates apply under the federal Internal Revenue Code (IRC). As of this writing, the maximum ordinary income tax rate is 37%, whereas the maximum long-term capital gains rate is 20%. Because the United States, for better or worse, uses graduated tax rates (meaning the rates vary based on a taxpayer's income), you might actually be subject to lower rates in certain circumstances. Additionally, other taxes may apply, increasing your total effective tax rate in certain situations. Generally, however, your long-term capital gains will be taxed at a lower rate than your ordinary income.
If you paid nothing for your restricted stock, you will be taxed on the value of your restricted stock 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. The aim is to get as much of your gain as possible taxed using that lower rate, rather than the ordinary income tax rate.
Two Simple Examples
In the examples below, assume you receive 500,000 shares subject to vesting, worth $0.01 per share at the time of grant, $2.00 per share at the time of vesting, and $10.00 per share when sold more than one year later. We’ll also assume you are subject to the maximum ordinary income tax rate and long-term capital gains rate. For simplicity, we will not discuss employment tax or state tax consequences, though you should make a note to ask your tax advisor or attorney about these, as they may be significant.
Example 1 – 83(b) Election
In this example, you (or your attorney) timely file a Section 83(b) election within 30 days of the restricted stock grant, when your shares are worth $5,000. You pay ordinary income tax of $1,850 (i.e., $5,000 x 37%). Because you filed a Section 83(b) election, you do not have to pay tax when the stock vests, only on the sale (at least one year, but possibly several years, in the future). When the stock is sold (more than one year after the date of grant) you recognize a taxable gain of $9.99 per share (not $10.00, because you get credit for the $0.01 per share you already took into income), and pay additional tax of $999,000 (i.e., $4,995,000 x 20%). Your economic gain after tax? $3,999,150 (i.e., $5,000,000 minus $1,850 minus $999,000).
Example 2 – No 83(b) Election
In this example, you do not file a Section 83(b) election. You pay no tax at grant (because the shares are unvested), but instead recognize income of $1,000,000 when the shares vest and thus have ordinary income tax of $370,000 at that time. That could be a serious problem if you do not have cash on hand at the time of vesting. On the sale (which occurs more than one year after the date of vesting) you recognize a taxable gain of $8.00 per share (not $10.00, because you get credit for the $2.00 per share you already took into income), and pay additional tax of $800,000 (i.e., $4,000,000 x 20%). Your economic gain after tax? $3,830,000 (i.e., $5,000,000 minus $370,000 minus $800,000).
In the above examples, filing a Section 83(b) election would have saved you $169,150.
Additional Benefits of Filing a Section 83(b) Election
Filing a Section 83(b) election also has two other benefits: (1) In the above examples, it prevents you from having a $370,000 tax hit when the stock vests, which may be at a time you don’t have cash to pay the tax; and (2) it starts your long-term capital gains (and qualified small business stock) holding period earlier.
This means you get the long-term capital gains rate as long as the sale of your shares occurs more than a year after the grant, rather than a year after vesting. In the case of qualified small business stock, you can possibly avoid federal tax entirely on some or all of your gain if the sale occurs more than five years after grant and certain other conditions are met.
So, you may ask, “if Section 83(b) elections are so beneficial, why doesn’t everyone file one?” If you receive restricted stock worth a nominal (that's legal speak for "small or next to nothing") amount, it almost always makes sense to file one provided you meet the qualifications. However, if you receive restricted stock worth a significant amount, filing a Section 83(b) election could cause you to incur a large tax liability immediately; that's a problem if you don't have the cash on hand. Also, if the company subsequently fails, or if you end up forfeiting unvested shares (e.g., by quitting your job prior to vesting), you might be better off not having filed a Section 83(b) election.
Bottom line: Speak with your attorney, but remember that the filing must be made (if at all) within 30 days after the grant date of your restricted stock. This deadline is absolute and cannot be extended.
Note that the grant date of your restricted stock is usually the date the Board of Directors approves the grant, even if you don’t receive the restricted stock paperwork until later. Therefore, time is of the essence in making this decision and filing the correct paperwork.
Instructions for Filing a Section 83(b) Election
The instructions below are intended for individual US-based taxpayers based on regulations issued in July 2016 and further updates by the IRS regarding the allowance of digital and electronic signatures. Ask your attorney to review your Section 83(b) election before filing with the IRS. Other purchasers or grantees, including corporate or trust purchasers, should contact legal and tax professionals licensed in their jurisdiction.
Please note that the election must be filed with the IRS within 30 days of the date of your restricted stock grant. Failure to file within that time will render the election void and you may recognize ordinary taxable income as your vesting restrictions lapse. Also note that except in very unusual cases, the election is irrevocable, meaning it cannot be rescinded, revoked, or changed after the fact.
Note that the instructions below are general in nature; should you hire The Law Office of Chad D. Cummings PLLC to file your election, our firm will handle this process for you.
Steps to File an 83(b) Election
- I. Make several copies of the completed and signed election form and one copy of the IRS cover letter. The signature on the election form may be a handwritten signature or an electronic or digital signature.
- II. Send the completed and signed election form and cover letter, the copy of the cover letter, and a self-addressed stamped return envelope to the Internal Revenue Service Center where you would otherwise file your tax return. Sending the election via certified mail, requesting a return receipt, with the certified mail number written on the cover letter is recommended.
- III. Deliver one copy of the completed election form to your employer.
- IV. Applicable state law may require that you attach a copy of the completed election form to your state personal income tax returns when you file it for the year. Consult your attorney to determine whether a copy of this Section 83(b) election should be filed with your state personal income tax return(s).
- V. Retain one copy of the completed election form for your personal permanent records.
Receive a Copy Our Free Checklist: “Making Your Section 83(b) Election”
Enter your email address to receive a free copy.
What's Included for $895:
- ✔️ 15 minute phone consultation with Chad D. Cummings, attorney and CPA (additional time available in fifteen minute increments at additional charge, if needed)
- ✔️ Preparation and filing of one Section 83(b) election and cover letter with the federal Internal Revenue Service (IRS)
- ✔️ Preparation and delivery of duplicate copy with cover letter to provide to your employer as required by law
- ✔️ Election sent to the IRS via USPS Certified Mail, Return Receipt Requested with electronic tracking to monitor delivery
- ✔️ Letter of instruction prepared by our Attorney-CPA to provide to your tax preparer or CPA when preparing your personal, individual IRS Form 1040
- ✔️ All documents prepared, reviewed, and filed by a REAL attorney and CPA (not an assistant or paralegal)
What's Not Included (Available at Additional Charge by Consultation):
- ➖ Additional or ongoing tax filings, tax preparation, or tax audit assistance
- ➖ Restricted share valuation (if required)
- ➖ Other legal, tax, or accounting work not explicitly identified above
Why Choose The Law Office of Chad D. Cummings PLLC?
- ✔️ Enjoy peace of mind knowing that your documents are prepared, reviewed, and filed by a licensed attorney and CPA with a brick-and-mortar office, not by a fly-by-night non-attorney (and possibly illegal) online "service"
- ✔️ Direct communication with a real attorney by email (also available over the phone or face-to-face by appointment and at additional charge), not an assistant or go-between
- ✔️ Complimentary, no obligation 15 minute phone consultation available before you buy
- ✔️ Competitive, flat-fee pricing available
- ✔️ 100% electronic, online filing and communication (no snail mail)
- ✔️ Electronic signatures by Docusign when needed
- ✔️ Digital, flexible payment options (including cryptocurrency)
- ✔️ Weekly email status updates included at no additional charge, if needed
File your 83(b) election now.
Flat-fee pricing.
Starting at $895.
Critical Tax Decision for Founders and Employees: Section 83(b) Election
One of the most crucial tax decisions for founders and employees of early-stage companies is whether to make an election under Section 83(b) of the Internal Revenue Code for stock awards or other acquisitions of shares subject to vesting.
By making this decision promptly upon acquiring the shares, founders can avoid missing the 83(b) filing deadline and protect themselves from significant tax consequences down the line.
Below, we address six of the most commonly asked questions about Section 83(b):
What is a Section 83(b) Election?
Section 83(b) of the Internal Revenue Code allows founders, employees, and other service providers to accelerate the time for determining taxable income on restricted stock awards or purchases subject to vesting. A Section 83(b) election is made by sending a legal instrument to the IRS requesting to be taxed on the date the restricted stock was granted or purchased rather than on the scheduled vesting dates.
Founders who decide to make an 83(b) election need to do so promptly to ensure they do not miss the 83(b) filing deadline. An 83(b) election must be filed with the IRS within 30 days after the grant or purchase date of the restricted stock. The last possible day for filing is calculated by counting every day (including weekends and holidays) starting with the day after the grant date.
What are the Benefits of an 83(b) Election?
There are several reasons why filing an 83(b) election may be beneficial for a founder or employee. Most notably, Section 83(b) allows founders to accelerate the determination of taxable income on an award or purchase of restricted stock to the date it was granted rather than on the date(s) the shares vest. If the restricted stock is purchased for an amount equal to its fair market value, an 83(b) election will result in no recognition of income as of the purchase date.
Additionally, an 83(b) election advances the beginning of the one-year long-term capital gain holding period, often resulting in preferential capital gain rather than ordinary tax treatment upon sale (long-term capital gain tax rates are 0%, 15%, and 20% for most taxpayers). Simply stated, an 83(b) election can result in significant tax savings under the right circumstances.
What Happens if a Founder or Employee Does Not File an 83(b) Election?
If a Section 83(b) election is not filed by the deadline, a founder would pay taxes on restricted stock grants at each vesting date. The founder's tax would be assessed at ordinary income rates on the amount by which the stock's value on the vesting date exceeds the purchase price, if any. This may result in a significant tax obligation if the value of the shares has increased substantially over time.
What are the Risks of an 83(b) Election?
Despite its benefits, the 83(b) election is not without risk. Making a Section 83(b) election accelerates the date that taxable income is recognized from the vesting date to the date the restricted stock is granted or purchased. This means that if a founder makes an 83(b) election, pays taxes on income based on the fair market value of the shares on the grant date, and then later forfeits his or her shares, the founder may have paid tax on unrealized income.
Receive a Copy Our Free Checklist: “Making Your Section 83(b) Election”
Enter your email address to receive a free copy.
What Scenarios Could Make an 83(b) Election More or Less Advantageous?
All things considered, a Section 83(b) election will likely be more (or less) advantageous for a founder or employee in the following scenarios:
Section 83(b) Election is More Advantageous:
- The amount of income reported at grant is small
- The stock's growth prospects are moderate to strong
- The risk of stock forfeiture is very low
Section 83(b) Election is Less Advantageous:
- The amount of income reported at grant is large
- The stock's growth prospects are low to moderate
- The risk of stock forfeiture is moderate to high
File your 83(b) election now.
Flat-fee pricing.
Starting at $895.
Conclusion
Filing a Section 83(b) election may seem simple; in reality, it is only one decision that the recipient of unvested restricted stock must make with respect to his or her tax universe. Relying on do-it-yourself PDF documents or unlicensed online "services" to handle this important filing for you is a bit like performing brain surgery on yourself: while it is theoretically possible, you might not like the results.
Also, it is critical to understand the nuances and timing involved in electing 83(b) treatment, as well as the fact that in all but the most exceptional cases the election is permanent.
For these reasons and others, it is imperative to consult and retain effective legal counsel to guide you in this decision. It is also worth noting that, in most cases, the corporation's attorneys represent the corporation, not individual employees, making it all the more vital to retain an attorney to represent your unique interests.
If you still have questions, click here to set up a free meeting with our firm's Attorney-CPA. There is no cost nor obligation. However, given the strict deadlines associated with 83(b) elections specifically and federal income taxation generally, time is of the essence, so do not delay. Unless and until we complete and sign an engagement letter (which may be an electronic engagement letter if you complete the 83(b) election on this website), our firm can accept no responsibility for your 83(b) election nor begin performing work for you on this important, time-sensitive matter.
