Business Law Blog

What To Know About The 83(b) Election For Business Owners

Posted by Amanda Butler Schley | May 27, 2024 | 0 Comments

Understanding the 83(b) election and the intricacies of this tax provision is crucial for startup employees. When it comes to stock options and equity compensation, navigating the complexities of Section 83(b) of the Internal Revenue Code is essential. Making the right decisions early on can have significant tax implications down the road.

The Section 83(b) election can be a powerful tool for individuals holding equity in startups. By taking a proactive approach and filing this election, employees can potentially reduce their tax burden and optimize their financial situation. At Business Law Group, our team of experienced business attorneys works with entrepreneurs to understand the key benefits and considerations surrounding the Louisiana 83(b) election to make informed choices about their company's equity compensation. To learn more, consider connecting with us at (504) 446-6506 today.

What Is the 83(b) Election for a Private Company?

The 83(b) election is a provision in the Internal Revenue Code that allows individuals to tax on the difference between the price paid for shares and their fair market value at the time of purchase. This election is particularly advantageous for individuals holding equity in startups as it can help reduce their tax burden and optimize their financial situation.

For Louisiana Business owners and employees, making an 83(b) election can have significant benefits. By choosing to pay taxes on the stock at the time of purchase, rather than when it vests, individuals can lock in the lower tax rate. This can be especially advantageous if the value of the company is expected to increase over time.

It's essential for private company employees to understand the implications of the 83(b) election and to carefully consider their options. While this election can minimize tax liabilities and provide financial benefits, it's crucial to weigh the risks and consult with a tax professional to ensure it's the right choice for their unique situation.

Can an LLC File an 83(b) Election?

For Louisiana business owners, understanding the nuances of the 83(b) election is crucial. One common question that arises is whether an LLC can file an 83(b) election. The Internal Revenue Code allows individuals who receive equity in a startup, including members of LLCs, to make this election.

  • LLC members who receive equity in the form of shares can indeed file an 83(b) election.

  • The election must be made within 30 days of acquiring the equity.

  • By filing an 83(b) election, LLC members can pay taxes based on the fair market value of the shares at the time of purchase.

Seeking guidance from an experienced attorney at Business Law Group can make all the difference when considering an 83(b) election is highly recommended. The implications of this election can have a significant impact on tax obligations for LLC members, so a thorough evaluation is key.

What Is the Risk of the 83(b) Election?

When considering the 83(b) election in Louisiana, business owners should be aware of the potential risks involved. One of the primary risks of opting for an 83(b) election is the requirement to pay taxes on the fair market value of the shares at the time of purchase. This means that business owners could face immediate tax liabilities even if the shares have not yet vested.

Another risk associated with the 83(b) election is the possibility of losing the initial investment made in acquiring the shares. If the shares lose value over time or if the business owner leaves the company before the shares vest, they may not be able to recover the initial purchase price.

Additionally, business owners should consider the impact of the 83(b) election on their overall tax obligations. The decision to make this election could have long-term consequences on how taxes are calculated and paid, potentially affecting tax rates and overall financial planning strategies.

Can Your Company File a Section 83(b) Election for an Employee?

When considering if a company can file a Section 83(b) election for an employee, it is crucial to understand that this election can only be made by the individual who received the property subject to the election. Therefore, the employer or the company itself cannot file this election on behalf of the employee. Each employee must individually assess their situation and decide whether filing an 83(b) election is beneficial.

Employees should be aware that the decision to file this election can significantly impact their tax obligations and financial future. While the company cannot directly make this election for an employee, it's recommended that businesses provide clear information and guidance to help employees understand the implications of choosing to file an 83(b) election.

Overall, while the company cannot file a Section 83(b) election for an employee, it's essential for businesses to foster a supportive environment where employees can assess the implications of this election and make choices that are in line with their individual financial strategies and objectives.

Frequently Asked Questions

The following are some frequently asked questions regarding the 83(b) election. 

Where Can I File an 83(b) Election?

Mail your completed letter to the IRS Service Center where you file your tax return. Send it via certified mail and request a return receipt. Don't forget to provide a copy to your employer.

Who Can Help Prepare the 83(b) Election?

Your Business Law Group attorney can handle the preparation entirely. You will only need to sign the letter and mail it to the IRS office responsible for handling your tax returns.

How Can I File a Late 83(b) Election?

If you missed your 83(b) deadline after receiving a stock grant, you and your company can amend the stock grant to change the repurchase price from par value to fair market value.

How Can Business Law Group Help Ensure Your Company's Success?

It is crucial for Louisiana business owners to fully understand the implications involved in making an 83(b) election and to seek guidance from a trusted legal advisor to assess whether this option aligns with their financial goals and circumstances. At Business Law Group, we take the time to understand our clients' goals and objectives to develop tailored legal strategies that work. Our skilled attorneys have the practical business experience needed to help you build a solid foundation to withstand legal and financial challenges. To discuss your strategy with our team, consider scheduling a consultation with us at (504) 446-6506 today. 

About the Author

Amanda Butler Schley

Ranked as a Top Rated Business and Commercial Attorney, I have more than a decade of experience representing boutique hotels, family-owned businesses, privately owned restaurants, breweries, artists, executives and entrepreneurs.


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Who We Are

Business Law Group is a boutique business services law firm in New Orleans, Louisiana. Our focus is on understanding the legal pitfalls of your business and industry, as well as the secrets to maximizing your legal leverage at every opportunity and in every negotiation. We work selectively with clients that aren't ready for the overhead expense of an in-house general counsel, but understand the advantages of having a trusted legal advisor on their team. Amanda Butler has been ranked as a Louisiana SuperLawyer, New Orleans Top Lawyer, Best Lawyers, and in Leaders of Law.