What is an 83(b) election?
An 83(b) election is a tax filing that lets you pay income tax on restricted stock at its current value rather than its future value when it vests.
When founders receive restricted stock subject to a vesting schedule, the IRS normally taxes each vesting event at the stock's fair market value on that date. If your company grows significantly, you could owe substantial taxes as shares vest at higher valuations. By filing an 83(b) election within 30 days of receiving the stock grant, you choose to pay tax on the entire grant immediately at its current (usually very low) value. For a startup issuing shares at $0.00001 per share, the tax on 1,000,000 shares would be approximately $0.10. Without the election, those same shares could be taxed at millions of dollars as they vest.