83(b) Election

An 83(b) election is a letter you file with the IRS within 30 days of receiving restricted stock (not options — actual stock subject to vesting). It lets you pay taxes on the stock's current fair market value at the time of the grant, rather than waiting to be taxed as each chunk vests. For early-stage startup founders and employees who receive restricted stock, this can save an enormous amount of money.

Here's why: when you receive restricted stock that's subject to vesting, the IRS normally taxes you on the fair market value as each portion vests — treated as ordinary income. If you receive stock when it's worth $0.001/share and it vests over four years, by the time the later portions vest, the stock might be worth $10/share. Without an 83(b), you'd owe ordinary income tax on the $9.999/share spread at each vesting event. With an 83(b), you pay a tiny amount of tax upfront (based on $0.001/share × all shares) and any future appreciation is taxed as capital gains when you eventually sell.

The catch: if you file an 83(b) and then leave the company before your stock fully vests, you've paid taxes on shares you ultimately forfeit — and you don't get that tax payment back. It's a calculated bet that the company will succeed and that you'll stay long enough for the equity to vest. For most early-stage founders buying stock at near-zero valuations, it's almost always the right call.

The 83(b) election is one of the most significant tax planning decisions a startup founder or early employee can make. Filing it correctly and on time can save tens of thousands (or even millions) in taxes. Missing the 30-day deadline is irreversible — there are no extensions, no exceptions. Every startup lawyer will tell you to file it immediately upon receiving restricted stock. The cost of filing is essentially zero (it's a letter to the IRS), but the cost of missing the deadline can be staggering.