Restricted stock awards let you take advantage of a so-called “83(b) election,” which allows you to report the stock award as ordinary income in the year it’s granted and then start the capital gain holding period at that time (caution: if the stock fails to appreciate, you don’t get a refund of the tax you paid when …

How long after Grant does restricted stock awards usually expire?

RSUs are converted to shares once they are vested, and therefore do not expire. Options have a stated expiration date (often, but not always, 10 years from the date they are granted.)

How are restricted stock awards different from stock options?

Restricted stock awards are a popular replacement for stock option grants. The reason is that the awards typically retain their value if the price of the stock drops. The company simply needs to award additional restricted shares. Stock options on the other hand lose most or all of their value if the underlying stock goes down in price.

When do you have to forfeit restricted stock awards?

Under the terms of the deal, you must forfeit the shares back to your employer if you leave the company for any reason before three years after the date of the transfer. If you sell the shares, whoever buys them must also forfeit them if you leave the company before the magic date.

What are restricted stock awards ( RSAs ) for startups?

Sean is one of the first five employees at a startup. Because the startup doesn’t have a lot of cash to pay for salaries, they offer Sean RSAs as part of his offer. RSA shares are given to employees on the day they are granted.

When does the tax holding period start for a restricted stock award?

For grants that pay in actual shares, the employee’s tax holding period begins at the time of vesting, and the employee’s tax basis is equal to the amount paid for the stock plus the amount included as ordinary compensation income.