83(b) Election
An IRS filing that lets you pay taxes on equity at grant rather than at vesting, locking in a lower value.
Definition
An 83(b) election is a tax filing with the IRS that lets you pay income tax on restricted stock or early-exercised options at the time of grant or exercise, rather than as shares vest. You must file within 30 days of receiving the shares. The benefit is that you pay taxes on the current (presumably low) value and any future appreciation is taxed as capital gains rather than ordinary income.
Why it matters
Filing an 83(b) at the right time can save you hundreds of thousands in taxes. The critical rule: you MUST file within 30 days. There are no extensions, no exceptions. Missing this deadline is one of the costliest mistakes startup employees make.
Example
You early-exercise 50,000 shares at $0.20 FMV. Filing 83(b) means paying income tax on $10,000 now (about $3,700 at 37%). Without the 83(b), if shares are worth $10 at vesting, you would owe income tax on $500,000 ($185,000 in tax). The 83(b) saves you $181,300.