83(b) Election: Complete Guide for Startup Founders
Learn when to file an 83(b) election, how it saves founders millions in taxes, the critical 30-day deadline, and step-by-step filing instructions with real examples.
Key Benefit
An 83(b) election allows you to pay tax on stock NOW (at $0.0001/share when granted) rather than later as it vests (potentially $5-50+/share). Founders who miss the 30-day deadline face tax bills of $1M+ on income they can't sell. This one form can save you millions.
⚠️ URGENT: 30-Day Absolute Deadline
You MUST file within 30 days of receiving stock. No extensions. No exceptions. Missing this deadline can cost you $1M-$10M+ in taxes. Set calendar reminders NOW.
Understanding 83(b) Elections
What is it?
An 83(b) election is a letter you send to the IRS within 30 days of receiving stock with vesting restrictions. It tells the IRS you want to recognize ordinary income on the full stock value TODAY (even though it hasn't vested) and pay tax now, rather than paying tax on the value as shares vest over time.
Why File?
Without an 83(b) election: You pay tax on stock value as it vests. If your company grows, you'll owe tax on $5-50/share as shares vest, creating massive ordinary income tax bills on stock you can't sell (no market for private company shares). With 83(b): You pay tax on $0.0001/share at grant (typically $0 tax), then all future growth is capital gains, not ordinary income. This saves founders $1M+ in taxes.
When to File
File 83(b) within 30 days of receiving stock with vesting restrictions (subject to repurchase or forfeiture). This includes: founder stock with 4-year vesting, early-exercised stock options, or restricted stock grants. If you receive stock that vests over time, you MUST file 83(b) or face enormous tax bills later. No extensions, no exceptions, no 'I forgot'—30 days is absolute.
Cost
$0 to file (it's a letter to the IRS). Costs money NOT to file: Founders who miss the 83(b) deadline can owe $1M-$10M+ in ordinary income tax on phantom income (stock value as it vests) that they can't sell. We've seen founders owe $2.4M in taxes on vested stock worth $8M that they couldn't sell.
How to File: Step-by-Step Guide
Complete instructions for filing your 83(b) election
Receive Stock Grant & Identify Deadline
Day 0: Grant date / transfer dateWhen you receive founder stock, restricted stock, or early-exercised options with vesting, start a countdown: You have exactly 30 days from the 'transfer date' (grant date) to postmark your 83(b) election. The transfer date is when you receive the stock, not when it vests. Set a calendar reminder immediately. Missing this deadline has NO remedy.
Complete IRS Form 83(b) Election
Days 1-15: Complete the letterThere's no official IRS form—you write a letter with specific required information: (1) your name and SSN, (2) description of property (e.g., '2,000,000 shares of Common Stock of Acme Inc.'), (3) date property was transferred, (4) taxable year, (5) nature of restriction (e.g., 'subject to vesting over 4 years'), (6) FMV of property at transfer ($0.0001/share × shares = ~$200), (7) amount paid ($200), (8) copy to employer, and (9) signature. Use a template from Clerky, Carta, or your lawyer.
Mail to IRS via Certified Mail
Days 15-25: Mail before day 30Print THREE copies of your completed 83(b) election letter. Mail one copy to the IRS Service Center where you'll file your tax return (address depends on your state). Use USPS Certified Mail, Return Receipt Requested. Keep the receipt and green return card as proof of filing. Give one copy to your company. Keep one copy for your records. This proof of mailing is critical—without it, the IRS can deny your election.
Provide Copy to Your Company
Days 15-30: Before deadlineGive a signed copy of your 83(b) election to your company (send to CFO, CEO, or whoever manages equity). The company needs this for their records and your W-2 (they'll report the taxable income from the election). Keep digital and physical copies of: the signed election, certified mail receipt, and green return card from USPS.
Report on Your Tax Return
April 15 following year: Tax returnThe taxable income from your 83(b) election (FMV minus amount paid) must be reported on your tax return for the year of the election. If you paid $0.0001/share FMV for shares, the taxable income is usually $0-200 total. Your company will report this on your W-2 (if employee) or you'll report on Schedule C (if contractor/founder). Pay ordinary income tax on this amount (typically $0 if FMV equals purchase price).
Critical Things to Know
30-Day Deadline is ABSOLUTE—No Extensions
You MUST postmark your 83(b) election within 30 days of receiving stock. There are no extensions, no exceptions, no 'I forgot', no 'my lawyer was busy'. Day 31 is too late. Weekends and holidays count. If you receive stock on January 1, you must mail by January 30. Courts have denied 83(b) elections postmarked one day late. Set multiple calendar reminders. This is the single most important tax deadline for founders.
The Tax Impact of NOT Filing 83(b)
Example: Founder receives 2M shares at $0.0001 with 4-year vesting. Doesn't file 83(b). After 1 year (25% vest = 500K shares), company raises Series A at $5/share valuation. Founder now has $2.5M in ordinary income (500K shares × $5 FMV) but can't sell shares (private company). Owes $925K in federal + state taxes on income they can't access. This happens to founders every year. Total tax over 4 years could exceed $4M+ on $10M of vesting stock value. With 83(b) filed: $0 tax at grant (paid $0.0001 = FMV), then capital gains treatment on sale.
Certified Mail is Required—Keep Proof
The IRS requires proof you mailed the 83(b) election within 30 days. Use USPS Certified Mail with Return Receipt Requested (~$8). Keep the certified mail receipt and the green return card. Without proof of timely mailing, the IRS can (and will) deny your election, resulting in millions in ordinary income tax. We've seen founders lose 83(b) elections because they sent regular mail with no proof.
Early Exercise Creates Immediate 83(b) Need
Some startups allow employees to early exercise stock options (exercise before vesting). This creates unvested stock subject to repurchase. You MUST file 83(b) within 30 days of early exercise or you'll owe tax as shares vest. Early exercise + 83(b) = pay ~$0 tax now on $0.0001 FMV, then long-term capital gains on all growth. This is one of the most powerful tax strategies for early employees at high-growth startups.
Avoid These Million-Dollar Mistakes
Mistake:
Missing the 30-day deadline
✓ Solution:
Set 3 calendar reminders: Day 10, Day 20, and Day 25 after receiving stock. Complete and mail the 83(b) by Day 25 to allow for any delays. Use certified mail. No extensions are available—30 days is absolute.
Mistake:
Not using certified mail or keeping proof
✓ Solution:
Always use USPS Certified Mail, Return Receipt Requested. Keep the receipt and green return card forever. Without proof of timely mailing, the IRS will deny your election, resulting in massive tax bills later.
Mistake:
Assuming 'the company will file it for me'
✓ Solution:
The 83(b) election is YOUR responsibility, not your company's. While good companies remind founders, it's ultimately on you. File it yourself, keep copies, and provide one to the company.
Mistake:
Filing 83(b) for fully vested stock
✓ Solution:
83(b) elections only apply to stock with vesting restrictions (subject to forfeiture). If you receive fully vested stock, there's no 83(b) to file. The taxable event happens immediately. You'll just pay tax on FMV minus purchase price.
Real Story: The $2.4M Mistake
What happens when you miss the 83(b) deadline
Scenario
Technical Co-founder (Early-Stage SaaS Startup)
Challenge
A technical co-founder received 2,000,000 shares of founder stock at $0.0001/share with 4-year vesting (1-year cliff). He paid $200 to purchase the shares. His lawyer told him about the 83(b) election but he 'forgot' to file it in the 30-day window. Company grew rapidly, raised Series A 18 months later at $8/share valuation.
What Happened
After Year 1 (cliff), 500,000 shares vested. At $8/share FMV, he had $4M in ordinary income ($8 FMV - $0.0001 cost basis). He couldn't sell shares (private company, no liquidity). Year 2, another 500,000 shares vested. Another $4M in ordinary income. Total tax over 2 years: $1.5M federal + $530K CA state = $2.03M in taxes owed. He had to borrow money to pay taxes on stock he couldn't sell. When we met him, he owed the IRS $800K+ with penalties and interest accruing.
The Cost
We negotiated an IRS installment plan ($12K/month for 72 months) and worked with the company to arrange a partial stock buyback to pay tax debt. Total cost of missing the 83(b) deadline: $2.4M in taxes paid on stock that was originally valued at $200. If he had filed the 83(b) within 30 days: $20 in federal tax at grant (ordinary income on ~$0), then long-term capital gains treatment on sale. The 83(b) election would have saved him $2.4M+ in taxes.
Frequently Asked Questions
What is an 83(b) election and why is it important?
An 83(b) election tells the IRS you want to pay tax on stock NOW (when granted at low/zero value) rather than later as it vests (when it could be worth millions). Without 83(b), founders owe ordinary income tax as shares vest, creating massive tax bills on stock they can't sell. With 83(b), you pay ~$0 tax at grant, and all future gains are capital gains. This saves founders $1M-$10M+ in taxes. Filing deadline is 30 days from grant—no exceptions.
When must I file an 83(b) election?
You must FILE (postmark) the 83(b) election within 30 days of receiving stock with vesting restrictions. The 30 days starts from the 'transfer date' (grant date), not when shares vest. Weekends and holidays count. Day 31 is too late—no extensions, no exceptions. Use certified mail and set calendar reminders for days 10, 20, and 25 after grant.
How do I file an 83(b) election?
Write a letter to the IRS with required info: your name/SSN, stock description, transfer date, FMV, amount paid, and signature. Mail via USPS Certified Mail to the IRS Service Center for your state within 30 days. Keep certified mail receipt as proof. Give copy to your company. Report the income on your tax return. Use a template from Clerky, Carta, or your lawyer—don't freestyle it.
What happens if I miss the 83(b) deadline?
You'll owe ordinary income tax on stock value as it vests (potentially millions on stock you can't sell). Example: 500K shares vest at $8/share = $4M ordinary income = $1.48M federal + state tax owed on paper gains. No extensions or remedies exist—if you miss the 30-day deadline, you're stuck. We've seen founders owe $2M+ in taxes because they missed the 83(b) deadline. This is the costliest tax mistake founders make.
How much tax will I owe when I file an 83(b) election?
You'll owe ordinary income tax on (FMV of stock minus amount paid). For founder stock: typically $0.0001/share FMV × 2M shares = $200 FMV, minus $200 you paid = $0 taxable income = $0 tax. If FMV is higher than purchase price, you owe tax on the difference. Most early-stage founders pay $0-50 in tax on an 83(b) election because they purchase at FMV. This small tax payment saves millions later.
Do I need to file 83(b) for stock options?
No for regular options (you file when you EXERCISE them if you early exercise). Yes if you early exercise options before vesting—then you have unvested stock and MUST file 83(b) within 30 days. ISOs and NSOs don't require 83(b) at grant, only if early exercised. Restricted stock and founder stock with vesting always require 83(b). When in doubt, ask your CPA.
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