Section 83(b) Elections Question

[DFA]

I received restricted stock the other day; this is a first for me so I have a couple of questions:
1. I received 12,000 shares
2. They vest over 4 years
3. The stock price on the day averaged to 0.83
I believe the stock could go to $2.00 in two years (just my option).
If I want to file a section 83(b) to avoid future taxes at vesting and just have to pay the Capital Gains at the time of sale, less cost basis, do I have to pay for the restricted stock ($9,960) at this time?
I have read the online articles, but they all seem to trend towards founders.
Also, if I leave the company (retire) in 2 years does it make sense to do the section 83(b) filing.
I believe the stock could go up in the next couple of years and I would have 6,000 vested shares.

 

[eridanus]

This is a stock grant, right? It's compensation? If so, you wouldn't pay anything but you would report it ($9960) to the IRS as taxable income. If you're serious about leaving in 2 years, then you might want to only file for the 6000 shares and not all of it. (Of course, the extra $4980 in taxable income is a small price to pay if you decide to continue past 2 years.)

I'm not a CPA or lawyer. It's probably worth it to get an hours time and ask him/her.

 

[DFA]

Thanks, Yes it is stock grants, Yes it is compensaton. So I would pay the income tax on my 2011 taxes a income?

 

[Buckeye]

This book by Kaye Thomas (Fairmark.com) might help. Pretty highly rated on Amazon.

 

[soupcxan]

99% of the time I cannot imagine why someone would make an 83b election. There are a lot of situations where the tax you paid will get totally wasted and you don't get any kind of credit or offset. 1. The stock could go to zero before vesting. 2. You forfeit the shares for some reason (quit/fired/etc).

Plus you are accelerating your cash taxes now while you are working and probably are in a higher tax bracket, if the shares vest and you retire then your marginal tax rate will drop. Why pay tax at a higher rate today if you don't have to?

 

[MichaelB]

This book by Kaye Thomas (Fairmark.com) might help. Pretty highly rated on Amazon.

Fairmark is an excellent source of tax info. Read their web site on Section 83b here Section 83b Election From Fairmark

When the election makes sense

The section 83b election makes sense in the following situations:

• The amount of income you'll report when you make the election is small and the potential growth in value of the stock is great.
• You expect reasonable growth in the value of the stock and the likelihood of a forfeiture is very small.

Conversely, you should avoid the section 83b election where a forfeiture seems likely, or where you'll pay a great deal of tax at the time of the election with only modest prospects for growth in the value of the stock.

What is the risk you forfeit the stock before vesting? That is a risk that needs to be quantified. Also, is the tax you'll pay now on the add'l $9.96K in income a burden? Can you pay it without causing hardship or disrupting your finances?