83(b) Election

TL;DR

A US tax election letting restricted-stock recipients pay tax on the grant-date value (not at vesting), often saving early-stage founders meaningful tax.

An 83(b) election lets an early-stock recipient pay ordinary income tax on the value at grant rather than waiting until each tranche vests. For founder grants made when the company is worth essentially nothing, the tax bill at grant is near zero. Without the election, each vesting tranche is taxed at then-current value — potentially huge for a successful company.

The election must be filed with the IRS within 30 days of the grant. Missing the deadline cannot be undone. It applies to restricted stock and to early-exercised options, not to standard option grants until they're exercised.

Worked example

A founder receives 4M restricted shares at $0.0001/share at incorporation. Filing 83(b) within 30 days fixes ordinary income at 4M × $0.0001 = $400 (negligible tax). Without it, each tranche vests at then-current FMV — at IPO with FMV $20, total vesting income would be $80M.

Common pitfalls

• Missing the 30-day filing deadline.
• Filing 83(b) on options instead of on early-exercised stock.
• Failing to keep proof of mailing — IRS receipt isn't always confirmable.

When this shows up in a pitch deck

Founder hygiene; not deck content.

Related terms

• ISO — A US tax-advantaged stock option for W-2 employees, eligible for long-term capital-gains treatment if holding-period requirements are met.
• NSO — Non-Qualified Stock Options — a more flexible US option type than ISOs, available to contractors and advisors but without the same tax-advantaged treatment.
• RSU — Restricted Stock Units — equity compensation that vests into shares without requiring exercise, common at late-stage and public companies.
• Common Stock — The base equity class held by founders and employees, with voting rights but no preference rights or dividends.
• Founder Vesting — A vesting schedule applied to founder equity, typically required by VC investors to align founders with the long-term outcome.

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