This Stock Election Could Save You Money
Restricted stock is stock that’s granted subject to a substantial risk of forfeiture. Income recognition is normally deferred until it is no longer subject to that risk or you sell it. You then pay taxes on the fair market value at your ordinary-income rate.
But, instead, you can make a Section 83(b) election to recognize ordinary income when you receive the stock. You must make this election within 30 days after receiving the stock and it 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.
There are some potential disadvantages:
• You must prepay tax in the current year — this could push you into a higher income tax bracket or trigger the additional 0.9% Medicare tax.
• Any taxes can’t be refunded due to the election even if you eventually forfeit the stock or sell it at a decreased value.
The tax professionals at Ciuni & Panichi, Inc. can assist you with determining if this option is right for you. If you’ve recently been awarded restricted stock or expect to be awarded stock this year, please contact Jim Komos at 216.831.7171 or jkomos@cp-advisors.com and see if this election is right for you.
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