Question

Joseph received 5,000 shares of restricted (common) stock from his employer on July 1, 2018. The terms of the restricted stock grant are such that if Joseph is still employed by Alternative Energy on July 1, 2022 the entire 5,000 shares will vest and become his property. Joseph, upon the advice of his tax advisor, prepared and filed an IRC Section 83(b) election on July 8, 2018. On July 1, 2018, the shares were valued at $5 per share. Joseph estimates the value of the shares in five years will be at least $150 per share. Joseph notified Alternative Energy about the IRC Section 83(b) election in a timely manner. None of the income tax consequences of this restricted stock grant was included in the $178,325 reported as part of Joseph’s gross wages (see above), so if Joseph has a 2018 tax consequence from the granting or 83(b) election, he will report it as other income.

What would be reported on the 2018 Tax return and where would it be reported in the tax return?

Answer 1

Under Section 83(b) election, the assesse will send letter to the Internal Revenue Service letting them know that he like to be taxed on the equity, such as shares of restricted stock, on the date the equity was granted to you rather than on the date the equity vests. It’s important to note here that Section 83(b) elections are applicable only for stock that is subject to vesting, since grants of fully vested stock will be taxed at the time of the grant.

There is form “Form of Section 83(b) Election” but it shall not be attached for form 1040. The fair market value of the award should already be included in W-2, box 1 or 1099-MISC, box 7.

After the stock vests, gains or losses from future sales will be reported on Form 1099-B, like any other stock sale.