What Is an 83(b) Election and Why Founders Should File One

If you just received restricted stock in your startup, you have 30 days to make one of the most important tax decisions of your founding journey. Miss this deadline and you could owe hundreds of thousands in taxes down the road.

The Problem: Vesting Creates a Tax Event

When you receive restricted stock (RSA), you typically don't own it outright — it vests over time (usually 4 years with a 1-year cliff). Under normal tax rules, you owe income tax each time stock vests, based on the fair market value at the time of vesting.

Here's where it gets painful:

• Day 1: You receive 1,000,000 shares at $0.001/share. Value = $1,000.
• Year 2: 250,000 shares vest. Company is now valued at $10/share. Value = $2,500,000.
• Tax due: You owe income tax on $2,500,000 of "income" — even though you haven't sold anything.

This is called a phantom income problem. You owe real taxes on paper gains.

The Solution: 83(b) Election

Section 83(b) of the Internal Revenue Code lets you pay taxes on the full grant at the time you receive it, rather than as it vests.

With an 83(b) election:

• Day 1: You receive 1,000,000 shares at $0.001/share. Value = $1,000.
• You file 83(b): Pay income tax on $1,000 (maybe $300-400 in taxes).
• Year 2, 3, 4: Shares vest. No additional income tax. Zero.
• When you sell: You pay capital gains tax (lower rate) on the difference.

You just saved potentially millions in taxes by filing one piece of paper.

Who Should File an 83(b)?

You should file if:

• You received restricted stock awards (RSAs) — not stock options
• The current fair market value is very low (typical for early-stage startups)
• You believe the stock will be worth significantly more in the future
• You can afford to pay the tax now (usually trivial at early stage)

You should not file if:

• You received stock options (ISOs/NSOs) — 83(b) doesn't apply to options
• The stock is already highly valued and you'd owe substantial taxes today
• There's a realistic chance the company will fail and you'd lose the tax payment

How to File: Step by Step

1. Complete the 83(b) Election Letter

The letter includes:

• Your name, address, and Social Security Number
• The company's name and address
• A description of the stock received
• The date of the grant
• The fair market value per share at the time of grant
• The amount you paid for the stock
• A statement that you're making the election under Section 83(b)

2. Mail to the IRS Within 30 Days

This deadline is absolute. There are no extensions, no exceptions.

Mail via certified mail with return receipt requested to the IRS Service Center where you file your tax return. The most common address:

Internal Revenue Service

P.O. Box 12191

Covington, KY 41012-0051

The election must be postmarked within 30 days of the grant date.

3. Send a Copy to Your Company

Provide a signed copy to your employer for their records. They may need it for payroll and tax reporting.

4. Keep a Copy for Your Records

Store it with your important tax documents. You'll need to reference it later.

5. Attach to Your Tax Return

Include a copy of the election with your federal income tax return for the tax year in which you received the grant.

Common Mistakes

• Missing the 30-day deadline — The most common and most costly mistake. Set a calendar reminder the day you receive the stock.
• Mailing to the wrong IRS address — Verify the correct Service Center for your state.
• Not sending certified mail — You need proof of mailing date. Regular mail doesn't provide this.
• Forgetting to send a copy to the company — Required but often overlooked.
• Filing for stock options — 83(b) applies to restricted stock, not options. If you receive ISOs or NSOs, this doesn't apply.

Track It With Slyced

Slyced's 83(b) Election Wizard automatically identifies which of your stock grants are eligible, calculates the deadline, and walks you through the filing process with a step-by-step checklist. Never miss the 30-day window.

Important: This article is for informational purposes only and does not constitute tax advice. Always consult a qualified tax advisor before making an 83(b) election.