Equity & Ownership

83(b) Elections

One page, thirty days, no extensions — the election that turns a future six-figure tax bill on stock you cannot sell into a tax bill of zero.

  • Intermediate
  • 8 min total
  • 12 chapters

What decision this helps you make: Whether to elect to be taxed today on equity that has barely any value, instead of later on the same equity after it has grown.

What this topic is

An 83(b) election is a short written statement telling the IRS to tax your unvested stock now, at today's value, instead of later as it vests. When today's value is a rounding error, the tax owed is a rounding error too — and everything the stock gains afterward becomes capital gain rather than ordinary income.

Why it matters

The default rule taxes you every time a tranche vests, at whatever the stock is worth on that day. In a company that is growing, that means rising ordinary income on shares with no market to sell into. Founders who file pay nothing. Founders who miss the window can face years of tax on paper gains they cannot fund.

Who should learn it

Founders receiving restricted stock, employees who early-exercise unvested options, anyone granted a profits interest — and every operator who signs equity paperwork for other people.

What you will understand

  • What the default rule actually does, tranche by tranche
  • When the 30-day clock starts, and what it starts from
  • The exact math on a founder grant, filed versus not filed
  • The two situations where filing is the wrong answer

Prerequisites

Common misconception

"I have not vested anything yet, so there is nothing to report." That is precisely backwards. The 30-day window opens when the stock is transferred to you — the day you sign the purchase agreement and pay for the shares — not when they vest. By the time your first tranche vests a year later, the window closed eleven months ago, and the statute gives the IRS no authority to reopen it for you.