Do I need to file Section 83(b) election?

September 18, 2006

Date:   Mon, 28 Aug 2006
From:   Sandra

Hello Mr. Gray,

I recently voluntarily terminated employment at a private company. Some of my vested stock options have an option price of $1 per share and others have an option price of 50¢ per share. I chose to exercise some of the stock options with a 50¢ option price.

The option price is higher than the estimated fair market value of the stock.

Do I need to file any forms, like a Section 83(b) election for exercising the options? Is there an AMT issue for exercising the options?

Thank you!



Date:   Mon, 11 Sep 2006

Hello Sandra,

Since you exercised the options after terminating your employment, the shares must be fully vested. No Section 83(b) election is available. The AMT issue principally relates to the exercise of incentive stock options where the fair market value of the stock exceeds the option price. Since you tell me the option price exceeds the fair market value of the stock, there should not be an AMT issue relating to the exercise.

Good luck!

Mike Gray

For more information about incentive stock options, request our free report, Incentive Stock Options – Executive Tax and Financial Planning Strategies.

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