If you make an 83(b) election, this starts the clock on important holding periods that must be observed before you can take advantage of certain tax benefits. If you do not make an 83(b) election, these holding periods begin at the time you exercise your stock options and actually receive the stock.
One-Year Holding Period for Long-Term Capital Gains
This holding period is important because long-term capital gains are taxed at a significantly lower rate than short-term capital gains, which are treated the same as ordinary income. After the one-year holding period has elapsed and at least two years have passed since the grant date, you will get favorable long-term capital gains tax treatment on the sale of the underlying stock. WRP can help you determine the best time to sell stock to achieve an advantageous balance of profit and tax savings.
Five-Year Holding Period for QSBS
Qualified small business stock (QSBS) is stock in a domestic C corporation with less than $50 million in assets at and immediately after time of issue. If you hold QSBS for at least five years and during that time, the company uses at least 80% of its assets for business operations, then your capital gains on sale of the stock may be exempt from federal taxes. WRP can help you determine whether your shares qualify as QSBS and advise you on how to achieve the best tax treatment for your gains.