You've just been granted some restricted stock or restricted stock units (RSUs) by your company, and you've decided to make an 83(b) election. Congratulations! This can be a savvy move that potentially saves you a substantial amount in future taxes, especially if your company's stock is expected to appreciate significantly. However, navigating the tax implications and reporting it correctly on your tax return, especially with a platform like TurboTax, can feel like a complex maze. Don't worry, we're here to guide you through it, step by step!
Understanding the 83(b) Election Before You Report It
Before we dive into TurboTax, let's briefly recap what an 83(b) election is and why you'd make one. When you receive restricted stock or RSUs, they are typically subject to a substantial risk of forfeiture, meaning you don't fully own them until they "vest" (e.g., after a certain period of employment or achieving specific milestones).
Without an 83(b) election, you'd generally be taxed on the fair market value (FMV) of the shares at the time they vest. If your company's stock value has increased significantly by then, you could face a hefty ordinary income tax bill.
With an 83(b) election, you choose to be taxed on the FMV of the shares at the time they are granted (or at early exercise, if applicable), even though they haven't vested yet. This often means paying tax on a much lower valuation, and any future appreciation is then taxed as capital gains when you eventually sell the stock, potentially at a lower long-term capital gains rate if held for over a year after the grant date.
Crucially, the 83(b) election must be filed with the IRS within 30 days of the grant date. This deadline is absolute and cannot be extended.
Now, let's get down to the nitty-gritty of reporting this on your tax return using TurboTax.
Step 1: Get Prepared – Gather Your Documents and Mentally Brace Yourself!
Alright, before we even open TurboTax, let's make sure you have everything you need. This isn't just about collecting papers; it's about understanding what you're looking for and why.
Sub-heading: Essential Documents to Locate
Your 83(b) Election Form/Statement: This is the document you timely filed with the IRS within 30 days of your restricted stock grant. As of 2024, the IRS has released Form 15620 specifically for 83(b) elections, but a written statement that meets IRS requirements is also valid. You should have kept a copy for your records. This document will have critical information like:
The date of the property transfer (grant date).
Description and quantity of the property (shares).
Fair market value of the property at the time of transfer.
Amount paid for the property (if any).
The total amount to include in gross income (FMV minus amount paid).
Form W-2 (if applicable): If your employer withheld taxes related to your 83(b) election, or included the income from your restricted stock grant on your W-2, it will be reflected in Box 1 (Wages, Tips, Other Compensation) and Box 2 (Federal Income Tax Withheld). However, for many 83(b) elections, especially for early-stage companies or founders, the income might not be directly on a W-2, as there might not have been cash compensation or withholding at the time of the grant.
Any other income statements: Such as 1099-NEC (for non-employee compensation) or 1099-MISC if the restricted stock was granted as a non-employee. This is less common for typical 83(b) scenarios but worth checking.
Your prior year's tax return: While not strictly necessary for reporting the 83(b) itself, it's always good to have for reference, especially if you're amending a return or want to ensure consistency.
Sub-heading: Key Information to Verify from Your 83(b) Election
Double-check these figures on your 83(b) document:
Grant Date: The precise date the restricted stock was transferred to you.
Number of Shares: The exact quantity of shares for which you made the election.
FMV at Grant Date: The fair market value per share on the grant date. This is crucial for determining your taxable income.
Amount Paid for Shares: Any amount you paid to acquire the shares. Often, for founders or early employees, this might be a nominal amount (e.g., $0.001 per share) or even zero.
Taxable Income from Election: This is the difference between the FMV at the grant date and the amount you paid for the shares. This is the amount you will report as income.
Step 2: Entering the 83(b) Election Income in TurboTax
Now that you're armed with your documents, let's fire up TurboTax. The way you report the 83(b) income depends heavily on whether your employer included it on your W-2 or if it needs to be reported as "other income."
Sub-heading: Scenario A: Income Included on Your W-2 (Less Common for 83(b))
If, by some chance, your employer did include the taxable income from your 83(b) election in Box 1 of your Form W-2 (Wages, Tips, Other Compensation), the process is relatively straightforward.
Navigate to the Wages & Income Section: In TurboTax, you'll go to the section where you enter your W-2 information.
Enter W-2 Information: Carefully input all the details from your W-2, just as you normally would. TurboTax will automatically pull the Box 1 amount into your income.
Verify Accuracy: After entering your W-2, double-check that the amount in Box 1 accurately reflects the taxable income from your 83(b) election. If it seems off, or if you believe your employer misreported it, you may need to contact your employer for a corrected W-2.
Why this is less common: For many 83(b) elections, especially when the shares are granted at a very low or nominal value (e.g., $0.01 per share), employers often don't include this small amount on the W-2. The primary purpose of the 83(b) election is to lock in a low tax basis before the stock vests and potentially appreciates, often when the shares have little to no readily ascertainable market value.
Sub-heading: Scenario B: Income NOT Included on Your W-2 (Most Common for 83(b))
This is the more typical scenario for 83(b) elections, especially for founders or early employees where the stock's value at grant is minimal and no formal W-2 reporting occurred for that specific transaction. You'll need to report this as "other income."
Open Your TurboTax Return: Log in and open the tax return for the year in which the 83(b) election was made (the grant date).
Navigate to Income & Expenses:
On the left-hand menu, click on "Federal".
Then, click on "Income & Expenses".
Find "Less Common Income": Scroll down the "Income & Expenses" summary until you see a section titled "Less Common Income".
Go to "Miscellaneous Income": Under "Less Common Income," look for "Miscellaneous Income, 1099-A, 1099-C" and click "Start" or "Revisit" next to it.
Locate "Other Income Not Already Reported": Continue through the screens in the Miscellaneous Income section. You'll eventually find an option like "Other income not already reported on a Form W-2 or Form 1099". Click "Start" next to this.
Answer "Yes" to "Any Other Earned Income": TurboTax will ask if you have any other earned income. Select "Yes."
Describe the Income: On the next screen, you'll be prompted to "Enter Source of Other Earned Income."
For "Source of Income," select "Other".
For "Description," enter something clear and concise, such as: "83(b) Election - Restricted Stock Grant" or "IRC Section 83(b) Election Income".
Enter the Amount: In the "Amount" field, enter the taxable income from your 83(b) election. This is the figure you calculated earlier: (Fair Market Value at Grant Date - Amount Paid for Shares).
Example: If your shares were valued at $0.01 per share, you received 100,000 shares, and you paid $0, your taxable income would be $1,000 (100,000 shares * $0.01/share).
Continue Through the Prompts: Follow any remaining on-screen prompts. TurboTax will incorporate this amount into your gross income, typically flowing to Line 1 of Form 1040.
Step 3: What About Form 15620? Do I Attach It?
This is a common point of confusion. In the past, the IRS required you to attach a copy of your 83(b) election statement to your tax return. However, this requirement has largely been eliminated.
Sub-heading: Current IRS Stance on Attachment
The IRS no longer requires you to attach a copy of your 83(b) election to your federal income tax return. The primary requirement is that you timely file the election directly with the IRS within the 30-day window.
You can still e-file your return even if you made an 83(b) election, as you no longer need to mail anything extra with your return related to the election.
Keep excellent records! While you don't attach it to your return, it is absolutely critical to keep a copy of your filed 83(b) election, along with proof of mailing (e.g., certified mail receipt), in your personal tax records. This is your proof that you made the election properly and on time, should the IRS ever question it.
Step 4: Future Considerations – When You Sell the Stock
Making the 83(b) election affects not only the year of the grant but also how you'll report the sale of these shares in the future.
Sub-heading: Basis Adjustment
When you sell the shares that were subject to an 83(b) election, your cost basis for those shares will be the Fair Market Value you reported as income on your 83(b) election (plus any amount you actually paid for the shares).
This is a crucial point because it ensures you're not taxed twice on the same appreciation. The amount you already included as ordinary income at the time of the 83(b) election is added to your basis.
Sub-heading: Capital Gains/Losses Upon Sale
When you eventually sell the stock, the difference between your sales price and your adjusted cost basis will be treated as a capital gain or loss.
Long-Term Capital Gains: If you hold the stock for more than one year from the date of the 83(b) election (grant date), any gain will be taxed at the lower long-term capital gains rates. This is a primary benefit of the 83(b) election.
Short-Term Capital Gains: If you sell the stock within one year or less from the date of the 83(b) election, any gain will be treated as short-term capital gain, taxed at your ordinary income tax rates.
You will report these sales on Schedule D (Capital Gains and Losses) and Form 8949 (Sales and Other Dispositions of Capital Assets) in TurboTax in the year you sell the shares, using the cost basis adjusted by your 83(b) election.
Step 5: Review and File
Once you've entered all your income and deductions in TurboTax:
Run the Error Check: Always utilize TurboTax's built-in error check feature. This can catch potential mistakes or missing information.
Review Your Forms: Take the time to review your Form 1040, specifically Line 1 (Wages, Salaries, Tips, etc.) to ensure the 83(b) income is properly reflected there. If you have significant 83(b) income not from a W-2, this line will include it.
Understand Your Tax Liability: See how the 83(b) income impacts your overall tax liability. Remember, if you paid little to nothing for the shares, the entire FMV at the grant date becomes taxable income in the year of the election.
Consider Professional Advice: If your situation is complex, or if the value of the restricted stock at the grant date was significant, consider consulting a qualified tax professional. An 83(b) election is a serious tax decision with long-term implications, and an expert can ensure you've done everything correctly.
File Your Return: Once you're confident, proceed to file your tax return through TurboTax. Remember, e-filing is now typically an option as you don't need to attach the 83(b) election.
Frequently Asked Questions (FAQs)
How to verify if my 83(b) election was filed correctly with the IRS?
You should have sent your 83(b) election via certified mail with a return receipt requested. The return receipt serves as your primary proof of timely filing. The IRS typically does not send an acknowledgment of receipt for 83(b) elections.
How to correct an error on a previously filed 83(b) election?
If you discover a minor error before the 30-day deadline, you can typically file a corrected election, noting that it's a correction. If the deadline has passed, correcting a substantial error or late filing is extremely difficult and usually requires consulting a tax attorney.
How to report an 83(b) election if I received no W-2 or 1099 for it?
As detailed in Step 2, Scenario B, you will report this as "Other Income Not Already Reported on a Form W-2 or Form 1099" within the Miscellaneous Income section of TurboTax.
How to calculate the taxable income for an 83(b) election?
The taxable income is calculated as: (Fair Market Value of the property at the time of transfer) - (Amount paid for the property). If you paid nothing for the shares, the full FMV at grant is taxable.
How to understand the implications if I forfeit the shares after making an 83(b) election?
If you forfeit the shares (e.g., leave the company before vesting), you cannot recover the taxes you paid on the income recognized at the time of the 83(b) election. Your deduction for the loss is limited to the amount you actually paid for the shares, not the previously recognized ordinary income. This is a significant risk of the 83(b) election.
How to determine my cost basis after an 83(b) election for future sales?
Your cost basis for the shares will be the Fair Market Value you reported as income on your 83(b) election (plus any amount you paid for the shares). This is critical for calculating capital gains or losses when you eventually sell.
How to know if my restricted stock is eligible for an 83(b) election?
An 83(b) election applies to "substantially nonvested property" transferred in connection with the performance of services. This usually means restricted stock or early-exercised stock options that are subject to a substantial risk of forfeiture. Restricted Stock Units (RSUs) are generally not eligible for an 83(b) election as they are a promise to deliver stock in the future, not actual property granted upfront.
How to get a copy of Form 15620 for the 83(b) election?
You can download Form 15620 directly from the IRS website (irs.gov). Search for "Form 15620" on their site. Remember to fill it out and mail it directly to the IRS within 30 days of your grant.
How to handle an 83(b) election if I'm a non-US resident but a US taxpayer?
If you are a US taxpayer (e.g., a green card holder or meet the substantial presence test), even if living abroad, an 83(b) election can still be relevant for your US tax obligations. It's crucial to consult with a tax advisor who specializes in international tax situations, as this can be complex.
How to amend my tax return if I forgot to report an 83(b) election?
If you failed to report the income from a properly and timely filed 83(b) election on your original tax return, you should amend your return using Form 1040-X. You'll add the 83(b) income to your gross income. If you failed to make the 83(b) election at all within the 30-day window, you cannot retroactively make it, and the shares will be taxed at vesting.
