83(b) Elections: A High-Stakes Tax Move for Founders

What Exactly Is the 83(b) Election?

Under IRS rules, when you receive restricted stock, stock that vests over time, the IRS typically taxes you as it vests. That means:

• Each vesting tranche is treated as ordinary income.
• Income equals the fair market value (FMV) at vesting.
• If the company appreciates, your tax bill grows too.

The 83(b) election lets you flip that tax treatment on its head. Instead of being taxed at each vest date, you elect to be taxed upfront on the FMV as of the grant date, even though the shares haven’t vested yet.

Why? Because at early-stage companies, the FMV at grant is often extremely low, sometimes pennies or fractions of a cent per share. Paying taxes on a tiny number now to convert future growth into long-term capital gains is one of the biggest financial planning levers for founders and early employees.

How the 83(b) Election Works (In Plain English)

When you file the 83(b):

• You tell the IRS you want to include the value of the restricted shares in income immediately (on the grant date), not when they vest.
• You pay any ordinary income tax due now (based on the grant-date FMV minus any amount you paid, if any).
• You restart the long-term capital gains holding period immediately.
• You owe no additional income tax at vesting.
• When you eventually sell the shares, almost all of the appreciation is treated as long-term capital gain.

This is why the 83(b) election is considered a wealth-acceleration strategy rather than just a tax form.

A Simple Example That Shows the Power of an 83(b) Election

Scenario
You receive 100,000 shares of restricted stock in a seed-stage company.

• Grant-date FMV: $0.01 per share
• Vesting: 4 years
• Exercise cost (if applicable): $0.00 (founder stock is often purchased for a nominal amount)

Without 83(b)

You are taxed on each vesting tranche as it vests. If the company’s value grows to $5.00 per share by Year 4:

• 100,000 shares × $5.00 = $500,000 ordinary income
• You pay ordinary income tax on $ 500,000, potentially at your highest marginal rate.
• You get taxed before the company is liquid and possibly before there’s any cash to pay the bill.

With 83(b)

You pay taxes on Day 1:

• 100,000 shares × $0.01 = $1,000 ordinary income
• All future growth (from $0.01 to $5.00) becomes long-term capital gain.

This is why startup attorneys and sophisticated advisors constantly emphasize:

👉 “The 83(b) election is the founder’s (or early employee’s) best friend.”

When the 83(b) Election Makes Sense

The 83(b) election is most beneficial when ALL of the following conditions are met:

• The FMV at grant is very low. Early-stage = small tax bill. Late-stage = potentially a high tax bill.
• You expect the value to grow meaningfully. If you anticipate rapid appreciation, the 83(b) creates enormous tax leverage.
• You’re committed to staying at the company long-term. If you leave early and unvested shares are forfeited, you don’t get your taxes back.
• You are receiving actual stock, not merely options (unless early-exercised).

When the 83(b) Election Does Not Make Sense

There are situations where an 83(b) election is not advisable:

• The current FMV is already meaningful — the upfront tax bill may be large.
• The company’s future is uncertain or likely to fail — you risk paying taxes on stock that ends up worthless.
• Cash is tight — paying even a small upfront tax may be burdensome.
• You received standard non-qualified stock options (NSOs) or Restricted Stock Units (RSUs) — in general, 83(b) doesn’t apply (except for early-exercised possibilities).

The Special Case: 83(b) Elections for Early-Exercised Stock Options

You can file an 83(b) election for early-exercised options, but only if:

• Your plan allows early exercise.
• You exercise before the vesting schedule.
• You pay the exercise price upfront.
• You file the 83(b) election within 30 days of exercise.

This is a key tax-planning move for employees at pre-IPO firms that offer early-exercise rights. Effective 2025, with the release of the new form and online filing, early-exercise plus timely 83(b) filings are now more streamlined.

It converts your option into restricted stock for tax purposes, allowing you to take advantage of long-term capital gains treatment on future appreciation.

How to File the 83(b) Election — Updated Process (2025)

Given recent developments, the filing process for a 2025 83(b) election has changed in two key ways: (1) the IRS has released an official form, and (2) electronic filing is now available.

Here’s the updated, step-by-step process:

Step 1: Use the official form — IRS Form 15620, “Section 83(b) Election”

On November 7, 2024, the IRS released Form 15620 — the first standardized form for making Section 83(b) elections. 

While taxpayers previously filed self-drafted letters under the model language from old guidance, using Form 15620 ensures you include all required information (name/TIN/address; description of property; date of transfer; FMV; restrictions; etc.).

Taxpayers are not strictly required to use Form 15620 — a compliant written statement under old rules (Treas. Reg. § 1.83-2(e)) remains acceptable.

Step 2: File within 30 days of the grant or transfer date

The election must be filed no later than 30 days after the date the property is transferred.

If the 30th day ends on a Saturday, Sunday, or federal holiday, the deadline shifts to the next business day.

Step 3: Choose your submission method: online or mail (but only one)

As of mid-2025, the IRS now permits taxpayers to submit Form 15620 online via its website.

To file online: create or sign in to your IRS account (with ID.me multi-factor authentication), complete the form, and submit electronically.

Alternatively, you can still download the PDF form, sign it, and mail it to the IRS office with which you file your federal income tax return.

Important: Use only one method, either electronic submission or mail, to avoid confusion, delays, or duplicate filings.

Step 4: Provide a copy of the filed election to your company (issuer/employer)

Regardless of how you file, you must give a copy of the executed election (or a copy of the confirmation if filed online) to the person for whom the services were performed (e.g., employer), or to the transferee if different.

This ensures the company has a record and can adequately account for deductions or compliance matters.

Step 5: Retain the filing confirmation and records

Keep a copy of the signed Form 15620 (or confirmation of e-filing), proof of mailing or electronic receipt, and a copy of the election given to the company.

The IRS no longer requires you to attach the election to your tax return — but you should retain it in your files in case of IRS inquiry or audit.

Step 6: Confirm your submission and maintain compliance

Ensure the form was submitted within the 30-day window.

Verify your employer/issuer received their copy.

Store all documentation permanently (or at least until the statute of limitations has long passed).

Tax Reporting: What Happens After You File the Election

Once you file:

• You recognize ordinary income equal to the FMV at grant (less any amount you paid, if any).
• The long-term capital gains holding period begins immediately (even though the shares are unvested).
• No tax events occur at vesting (if you file correctly).
• Your basis in the stock for future sale = what you paid + the amount included as income.

This is critical — because when you eventually sell, the gains above this basis will generally be taxed as long-term capital gains (assuming holding period is satisfied), not ordinary income.

What If You Leave the Company Early?

If you leave before full vesting, you forfeit unvested shares.

You do not get the taxes you paid on the 83(b) election refunded.

That’s the most significant risk of 83(b) — especially for non-founders or early employees whose tenure is uncertain.

What If the Company Fails?

If the company fails and the stock becomes worthless, the taxes you paid under 83(b) are lost.

You may be able to claim a capital loss when you dispose of the worthless stock, but that rarely offsets the ordinary income tax you already paid.

This risk is one reason 83(b) election decisions should be made carefully, not blindly.

How 83(b) Elections Affect Qualified Small Business Stock (QSBS) Planning

One of the most powerful tax plays: combining 83(b) election with QSBS eligibility.

Because 83(b) moves the taxable event to the grant date, your QSBS 5-year holding period can begin immediately, rather than when shares vest. 

If the company qualifies under QSBS rules, it can result in significant tax savings — especially if the company grows substantially before an exit.

Common Mistakes People Make With 83(b) Elections

Here are mistakes I see too often when advising founders, pre-IPO executives, and early employees:

• Missing the 30-day deadline. This is the most common—and fatal—error.
• Filing an incomplete or self-drafted statement that doesn’t meet regulations. This risk is mitigated now with Form 15620.
• Assuming you can back-date or correct the filing. You cannot.
• Filing 83(b) on standard NSOs or RSUs. Not allowed.
• Not planning for liquidity. Even a small tax bill can be a burden if cash is tight.
• Underestimating company risk or overestimating stay duration. If you leave early or the company fails, the election can be costly.
• Ignoring recordkeeping. Without proof of filing, you may struggle to defend the election in an audit.

83(b) Elections for Founders vs. Employees: What’s Different?

Founders:

• Almost always file 83(b) — grant-date FMV is often negligible (e.g., $0.0001/share).
• The tax bill is tiny.
• Ownership percentage is meaningful.
• The likelihood of long-term stay and eventual exit is higher.
• QSBS treatment is more viable.

Employees / Early Executives:

• FMV may already be meaningful (especially post-Series A).
• Tax bill may be substantial.
• Tenure is uncertain — higher forfeiture risk.
• Liquidity may be limited at vesting.
• Must carefully weigh the trade-offs.

Given today’s new filing process, the calculus is slightly easier — but the strategic questions remain as vital as ever.

When You Should Absolutely Talk to an Advisor

Given the new form and e-filing option, you don’t necessarily need a lawyer to draft the 83(b) letter physically. But you should consult an advisor (tax or financial) if:

• The company is beyond the seed stage or already has a meaningful valuation.
• You plan to early-exercise stock options at a non-nominal strike price.
• You have a high income this year, or liquidity constraints.
• You want to integrate 83(b) with QSBS or other long-term wealth strategies.
• You are uncertain about your tenure or exit path.

At VIP-level wealth advisory, we run 83(b) tax-scenario modeling, long-term gain projections, and liquidity assessments — and coordinate with your equity counsel to ensure the election aligns with your overall wealth plan.

VIP 83(b) Election Filing Checklist (for Clients & Advisors)

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