Why founders and early employees should file an 83(b) election, the 30-day deadline that catches people out, and how to file it correctly with the IRS.
The 83(b) election is a one-page form. Filing it correctly can save six or seven figures in future taxes. Missing the 30-day window is one of the most expensive administrative errors a founder can make.
For restricted stock (founder shares, early-exercised options), the default IRS treatment is to tax the difference between fair market value and price paid AT EACH VESTING EVENT. An 83(b) election accelerates all of that tax to today, when the difference is typically zero.
Without 83(b): if founder shares appreciate over 4 years of vesting, ordinary income tax hits at each monthly vest on the appreciation. On a company that goes from $0 to $50M valuation, that's millions in ordinary income tax on shares you haven't sold. With 83(b): the appreciation becomes long-term capital gains at exit.
You must file within 30 calendar days of stock issuance or option early-exercise. No extensions. Postmark counts. Missing this window means the election is invalid and there's no legal recourse.
Send a signed 83(b) election letter to the IRS office where you file your tax return. Send by certified mail with return receipt. Keep a copy for your company records. Include a copy with your Form 1040 for the year. Some platforms (Carta, Pulley) file it for you.
Founder stock at incorporation: always file (spread is $0). Early exercise of options right after grant: usually file (spread is small). Late exercise or vested shares: consult a CPA — the spread may create real current tax liability.
Forgetting to file at all. Filing late (even one day). Not keeping proof of mailing. Missing the copy included with your tax return. Assuming the company or lawyer filed it for you — always verify.
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