Comments on: What is an 83(b) election?

By: Yokum

Yokum — Fri, 19 Mar 2010 08:23:57 +0000

@Darryl – Tax on exercise of an option depends on whether it was an NSO or an ISO — not whether you file an 83(b), which affects the timing of the measurement of tax. Early exercising an option may make sense if the aggregate exercise price is low.

By: Yokum

Yokum — Fri, 19 Mar 2010 08:21:02 +0000

@Guest – you should ask a tax preparer.

By: Dennes

Dennes — Mon, 15 Mar 2010 05:02:02 +0000

Hi Yokum,

I filed an 83(b) election within 30 days at the Fresno, CA's IRS Service Center although, as a non-resident, I need to file my 1040-NR at the Austin, TX's Center. Is there anything I can do about it?

Thanks!

By: Darryl G

Darryl G — Thu, 11 Mar 2010 11:00:13 +0000

If there is no need to file an 83(b)… does that mean there is no way to avoid the tax created?

Also, given the above when I start at the next startup I am about to join (as an employee), would I be in a better situation if I elected to exercise my options early and submit an 83(b)?

Thanks for this great resource,

By: Yokum

Yokum — Thu, 11 Mar 2010 09:37:25 +0000

@sheron – please check with your own advisors and read the disclaimers. If there is no “spread” (difference between exercise price and fair market value) at the time of exerise of an ISO, then there will be no AMT preference. Please see the following post for an explanation of the differences between exercise of an ISO and NSO. Generally speaking, a person will be better off with an NSO if he/she will exercise when there is no spread. http://www.startupcompanylawyer.com/2008/03/05/...

By: Yokum

Yokum — Thu, 11 Mar 2010 09:27:36 +0000

@Darryl – please check with your own advisors and read the disclaimers. If you are exercising fully-vested stock and there is no right of repurchase, then there is no need to file an 83(b) election.

By: sheron74

sheron74 — Thu, 11 Mar 2010 08:54:31 +0000

Hi Yokum,

Thank you for your great effort to maintain this site which is extremely helpful.

According to your posts, can I say employees who early exercise ISOs and file 83(b) election will be subject to AMT report, and income tax report at time he sells the shares acquired? If employee chooses not to early exercise ISO, my understanding is he does not need to report income tax at time of exercise, but need to report income tax at time he sells the shares.

If this is true, it seems early exercise of ISO with 83(b) election will not benefit employees in most of cases except it starts accruing time period earlier for long-time investment purpose. Plus, there is risk of double tax.

I am green in this area, please correct me if I am wrong

By: Darryl G

Darryl G — Wed, 10 Mar 2010 02:30:24 +0000

My situation seems typical but not covered here/in comments.

I'm not a founder in the startup I am working for but I was issued employee options. I'm about to leave the company having already worked past my 1 year cliff - and so essentially I will have to exercise the options within 30 days of my last day.

(I didn't elect to vest early but just signed my options agreement - which seems common among regular employees. Maybe that was the wrong decision?)

Given where I am now, can you tell me where I stand with regards to 83b election? Can I still make the election when I exercise my options or am I too late?

Many thanks

By: Yokum

Yokum — Mon, 22 Feb 2010 08:22:14 +0000

@Jane – please consult with a tax advisor. You will need some documentation from the company that the common stock was rendered worthless.

By: Yokum

Yokum — Mon, 22 Feb 2010 08:15:09 +0000

@KT – I punt to tax advisors.