What Is an 83(b) Election?

[niyati]

Can someone explain what an 83(b) election is? I’ve heard it’s related to startup equity and stock options, but I’m not fully sure how it works. When should someone file it, and what are the benefits or risks of making an 83(b) election with the IRS?

 

[Emly]

An 83(b) election is a tax option that lets employees or founders pay taxes on the fair market value of restricted stock when it’s granted, instead of when it vests. This can reduce future tax liability if the stock’s value increases, but it must be filed with the IRS within 30 days of the grant date.

 

[Will David]

An 83(b) election is a tax filing that you fill in case you have been issued with restricted stock commonly issued by a startup. It allows you to pay taxes on the value of the stock at the time of payment as opposed to deferring to the time it vests and may gain value.
That is to be filed within 30 days of taking delivery of the stock. The biggest advantage is that it will set the lower tax rate in the case of the increase in the value of the stock. The danger here is that when the stock devalues or you eventually quit it does not get that tax money back.

 

[Sophie]

An 83(b) election allows employees or the founders of a business to pay taxes on restricted stock at that time, which could decrease taxes in the future in case the value of that stock appreciates over time.

 

[Lucky]

An 83(b) election allows employees or founders to pay taxes on the fair market value of restricted stock at the time it’s granted, instead of when it vests. This can reduce tax liability if the stock’s value increases over time, offering long-term financial advantages.