Understanding and Filing an 83(b) Election: Your Complete Guide

Filing an 83(b) election is a crucial step for many startup founders and employees who receive restricted stock or equity subject to vesting. Having helped hundreds of clients navigate this process, I’ve created this 83(b) Election Generator to simplify what can otherwise be a complex filing requirement. This comprehensive guide walks you through what an 83(b) election is, why it matters, and how to use my generator to create your election form correctly.

What Is an 83(b) Election?

An 83(b) election is a letter you file with the Internal Revenue Service (IRS) to report income from restricted property (typically stock) that isn’t fully vested when you receive it. By filing this election, you’re choosing to be taxed on the total fair market value of your stock grant at the time of receipt, rather than as it vests over time.

The name comes from Section 83(b) of the Internal Revenue Code, which allows taxpayers to elect different tax treatment for property received as compensation that is subject to a “substantial risk of forfeiture” (typically a vesting schedule).

Why Filing an 83(b) Election Matters

Filing an 83(b) election can have significant tax advantages, particularly for startup founders and early employees who receive equity at a low valuation. Here’s why it matters:

Tax Acceleration vs. Tax Reduction

Without an 83(b) election, you’re taxed on your equity as it vests, at whatever the fair market value (FMV) is at each vesting date. If your company’s value increases substantially (as you hope it will), you could face a much larger tax bill as shares vest at higher valuations.

With an 83(b) election, you pay tax upfront on the initial value, which is often minimal for early-stage companies. Any future appreciation is then taxed as capital gains when you eventually sell the shares, typically at lower rates than ordinary income.

Example Scenario

Imagine you receive 10,000 shares of restricted stock in a startup, valued at $0.10 per share ($1,000 total) with a four-year vesting schedule. You paid $0.01 per share ($100 total).

Without an 83(b) election:

• As your shares vest, you’ll pay ordinary income tax on the difference between the FMV at vesting and what you paid.
• If the share price increases to $1.00 by year one, $5.00 by year two, and so on, your tax liability grows with the company’s success.

With an 83(b) election:

• You pay tax immediately on $900 ($1,000 FMV minus $100 purchase price).
• When you sell the shares years later for, say, $20 per share, the $19.90 per share gain is taxed at (typically lower) capital gains rates.

When to File an 83(b) Election

The IRS requires that you file your 83(b) election within 30 days of receiving your restricted stock. This deadline is strict and non-negotiable. If you miss it, you lose the ability to make the election, regardless of the circumstances.

You should consider filing an 83(b) election when:

1. You receive restricted stock subject to vesting
2. You exercise early-exercise stock options before they’re vested
3. You receive an equity grant in an LLC with vesting provisions

The election is particularly valuable when:

• The current FMV of the stock is low
• You expect the value to increase significantly
• The purchase price is close to or equal to the current FMV
• You plan to hold the stock long-term

How to Use My 83(b) Election Generator

I’ve created this 83(b) Election Generator to simplify the process of creating a properly formatted election form. Here’s how to use it:

Step 1: Enter Your Personal Information

Start by entering your basic personal information, including:

• Full legal name
• Social Security Number
• Home address

This information is essential for tax filing purposes and must be accurate.

Step 2: Enter Company Information

Next, provide details about the company issuing your restricted stock:

• Company legal name
• Employer Identification Number (EIN)
• Company address

You can typically find this information in your stock purchase agreement or by asking your company’s HR or legal department.

Step 3: Enter Property Details

In this section, specify details about the equity you’re receiving:

• Type of property (common stock, preferred stock, or LLC membership interest)
• Grant/purchase date
• Number of shares/units
• Total purchase price
• Fair market value per share/unit

The grant date is the date on your stock purchase or grant agreement. The fair market value should be the company’s most recent 409A valuation or other board-approved valuation.

Step 4: Enter Vesting and Additional Information

This step collects information about:

• Vesting schedule (typical 4-year schedule or custom)
• Filing status (individual or joint with spouse)
• Spouse information (if filing jointly)

If you’re married and filing jointly, your spouse will need to sign the election as well.

Step 5: Generate and File Your Election

The final step presents your completed 83(b) election form. You can:

• Review the document for accuracy
• Copy the text to paste into your own document
• Download the form for printing and signing

Key Elements of a Proper 83(b) Election

A properly formatted 83(b) election must include specific information to be valid:

1. A statement that you’re making an election under Section 83(b)
2. Your name, address, and taxpayer identification number
3. Description of the property (number and type of shares)
4. The date the property was transferred to you
5. The restrictions on the property (vesting schedule)
6. The fair market value at the time of transfer
7. The amount you paid for the property
8. The amount to include in gross income (FMV minus amount paid)
9. Your signature and the date

My 83(b) Election Generator ensures all these elements are properly included and formatted.

Filing Instructions

After generating your 83(b) election form, follow these steps:

1. Print and sign the document – Both you and your spouse (if filing jointly) must sign and date the form.
2. Make multiple copies – You’ll need at least three copies: one for the IRS, one for your personal records, and one to include with your tax return.
3. Mail to the IRS – Send the signed original to the IRS office where you file your tax returns. For most people, this is the address listed in the 1040 instruction booklet for “without a payment.”
4. Send a copy to your employer – Provide a copy to the company that granted you the stock.
5. Request proof of delivery – Use certified mail with return receipt requested to document that you filed within the 30-day window.
6. Include with tax return – Attach a copy to your tax return for the year in which you received the stock.
7. Keep a copy – Store a copy with your important tax records for at least seven years.

Common Mistakes to Avoid

Based on my experience helping clients with 83(b) elections, here are some common pitfalls to avoid:

1. Missing the 30-day deadline – The most critical error is filing late. Set calendar reminders from day one.
2. Incorrect valuation – Use the company’s official valuation. Don’t guess or use an outdated figure.
3. Forgetting spousal consent – If you’re married, particularly in community property states, you may need your spouse’s signature.
4. Not keeping proof of filing – Without proof of timely filing, the IRS may challenge your election years later.
5. Failing to send a copy to your employer – This is a statutory requirement that many people overlook.
6. Not including with your tax return – Attach a copy to your annual tax return for the year of the stock grant.
7. Filing unnecessarily – If you receive fully vested shares or pay full FMV, an 83(b) election provides no benefit.

FAQ About 83(b) Elections

Can I file an 83(b) election if I’m granted options instead of stock?

You generally can’t file an 83(b) election for traditional stock options. However, if you have early-exercise options and choose to exercise them before they’re vested, then you can and should file an 83(b) election based on the exercise, not the grant.

What if I don’t know the fair market value of my shares?

The company issuing your stock should provide you with the appropriate valuation. For startups, this is typically determined by a 409A valuation or set by the board of directors. Don’t guess—using an incorrect value could invalidate your election or cause tax complications.

What happens if I leave the company before my shares fully vest?

If you leave before full vesting, you’ll typically forfeit the unvested shares. However, you won’t get a tax refund for the taxes you prepaid on those shares through your 83(b) election. This is one of the risks of making the election.

Do I need to file a new 83(b) election if I receive additional grants later?

Yes. Each new grant of restricted stock requires its own 83(b) election within 30 days of receipt. Your previous election doesn’t carry over to new grants.

What if the stock price decreases after I file my 83(b) election?

This is the primary risk of filing an 83(b) election. If the stock value drops, you will have paid tax on a higher value than the stock is ultimately worth. Unfortunately, there’s no mechanism to recover those taxes if the stock decreases in value.

Should I consult with a tax professional before filing?

Absolutely. While my 83(b) Election Generator creates a properly formatted form, it doesn’t provide personalized tax advice. Your specific situation may have complexities that warrant professional consultation. This is particularly true if you’re receiving a substantial equity grant or if you’re in an unusual tax situation.

How do I know if my 83(b) election was processed correctly?

The IRS doesn’t typically send confirmation that your 83(b) election was received or processed. This is why sending it via certified mail with return receipt requested is so important—it provides your proof of timely filing.

Can I revoke or amend an 83(b) election after filing?

Generally, no. Once filed, an 83(b) election cannot be revoked without IRS consent, which is rarely granted. This is why it’s crucial to carefully consider the decision before filing.

The decision to file an 83(b) election can have significant financial implications. While this guide and my 83(b) Election Generator provide the tools you need to file correctly, each situation is unique. If you’re uncertain about whether filing is right for you, I’m available for consultations to discuss your specific circumstances and ensure you’re making the most advantageous choice for your financial future.