Property for Services Series: Part 1 of 5
An important and often misunderstood concept in the US tax system is taxability of property for services, aka IRS Section 83 Primer: Property for Services. This common tax issue affects both our RIA clients with their own succession planning and clients who receive options or restricted stock units (RSUs) from their employer. At Elevate CPA Group, we are here to help you avoid common RIA tax errors.
As a tax professional, our Spidey senses are triggered when our clients become owners in a company. Ownership is an exciting time in your clients’ lives, but without a firm understanding and proactive planning, this exciting event can lead to a painful and unexpected tax consequence in the future.
The general concept of “property for services’” is fairly straight forward when broken down. Employees receiving property directly from the employer should not be treated differently than an employee who uses cash payroll to purchase property. In other words, we can’t avoid taxing assets given directly to the employee.
To help our RIA firm clients and their clients, I have written a series of blogs deciphering IRA Section 83, aka Property transferred in connection with the performance of services.
As we all know, concepts can be simple—but putting the concept into practice can be very difficult. The next blogs will address:
- When does the property become taxable, i.e. vesting and the 83(b) election;
- How much is taxable, i.e. valuation and options;
- Importance of planning for transfer of ownership; and
- Tax Treatment of Options
At Elevate CPA Group, our sole focus is the RIA community. We pride ourselves on helping RIA clients streamline and increase the value of their business. By not only providing a full range of services including fractional CFO, but also having the expertise to help you bring sophisticated tax planning to your best client relationships. If you have questions about property for services taxation, give us a call.