83(b) Election: Tax Strategy and When and Why to File

For founders, early employees, and startup operators, equity compensation is often a major part of long-term wealth creation. However, how that equity is taxed can significantly impact your financial outcome.

The 83(b) election is one of the most important tax strategies available in the U.S. for individuals receiving equity subject to vesting. When used correctly, it can reduce tax liability and shift future gains into more favorable capital gains treatment.

This guide explains what an 83(b) election is, when to file, how it’s taxed, and the risks involved, so you can make an informed decision.

Filing an 83(b) election: What every founder needs to know

If you receive equity that vests over time, such as restricted stock or early-exercised options, you are typically taxed when that equity vests.

An 83(b) election allows you to accelerate that tax event to the grant date, when the value of the shares is often very low.

For early-stage founders and employees, this can mean:

• Paying minimal tax upfront

• Avoiding higher ordinary income tax later

• Locking in capital gains treatment on future growth

However, the election must be filed correctly and within strict deadlines.

What is an 83(b) election?

An 83(b) election is a provision under Section 83(b) of the U.S. Internal Revenue Code that allows you to choose to be taxed on the value of equity at the time it is granted, rather than when it vests.

Normally:

• You are taxed when shares vest

• The taxable income is based on the fair market value at vesting

With an 83(b) election:

• You are taxed at grant, not vesting

• Future appreciation is taxed as capital gains, not ordinary income

This election is most commonly used by founders and early employees who receive restricted stock or early-exercised options.

Why file an 83(b) election?

The primary reason to file an 83(b) election is tax efficiency.

1. Reduce total tax liability

At the time of grant, shares are typically worth very little. By paying tax on this lower value, you minimize upfront tax exposure.

2. Convert future gains to capital gains

Without an 83(b) election, any increase in value before vesting is taxed as ordinary income.

With the election, that appreciation is taxed at capital gains rates, which are generally lower.

3. Start the capital gains holding period early

Filing an 83(b) election starts your capital gains clock immediately, which is important for qualifying for long-term capital gains treatment.

4. Simplify future tax reporting

Instead of recognizing income at each vesting event, your tax treatment is largely handled upfront.

How an 83(b) election is taxed

Understanding how the election is taxed is critical before filing.

At the time of grant

You pay ordinary income tax on:

• The fair market value of the shares at grant

• Minus any amount paid for the shares

In many early-stage startups, this value is close to zero, resulting in minimal tax.

After the election

Once filed:

• No additional ordinary income tax is triggered at vesting

• Future gains are taxed as capital gains upon sale

At the time of sale

When you sell the shares:

• Gains are taxed as capital gains

• Long-term capital gains apply if held for more than one year

What are the risks of filing?

While the 83(b) election offers clear benefits, it is not risk-free.

1. You pay tax upfront

Even if the shares never increase in value, you’ve already paid tax.

2. Risk of forfeiture

If you leave the company before vesting:

• You may lose unvested shares

• The taxes paid are generally not refundable

3. Illiquid investment

Startup equity is not easily sellable. You may pay tax on shares that cannot be converted into cash.

4. Company performance risk

If the company fails or the shares decline in value, the tax paid upfront may not be recoverable.

Because of these risks, it’s important to evaluate your personal financial situation and the company’s outlook.

What types of equity are eligible for an 83(b) election?

Not all equity qualifies for an 83(b) election. It applies specifically to equity that is subject to vesting.

Restricted stock awards (RSA)

RSAs are the most common use case.

• Shares are granted upfront

• Subject to vesting over time

• Eligible for 83(b) election

ISOs and NSOs: Early-exercised stock options

If stock options are early exercised (before vesting), they may qualify.

• ISOs (Incentive Stock Options)

• NSOs (Non-qualified Stock Options)

Eligibility depends on whether the shares are subject to vesting after exercise.

Profits interests in an LLC

In some cases, profits interests granted by LLCs may qualify for similar tax treatment through an 83(b)-type election.

This is commonly used in:

• Private equity structures

• Partnership-based compensation

Professional guidance is essential in these cases due to complexity.

How to file an 83(b) election

Filing an 83(b) election is a time-sensitive process. It’s simple in structure, but mistakes or delays can permanently eliminate the tax benefit.

Here’s how to do it correctly.

Step 1: Confirm your equity is eligible

Before filing, make sure your equity qualifies.

An 83(b) election typically applies to:

• Restricted stock (RSA)

• Early-exercised stock options (ISOs or NSOs)

• Equity subject to vesting

If your equity does not vest, the election usually doesn’t apply.

Step 2: Use IRS Form 15620 (recommended)

The IRS now provides Form 15620 for 83(b) elections.

You can still submit a written statement, but using the official form helps avoid errors and missing details.

Step 3: Fill in the required details

Whether using Form 15620 or a written statement, you must include:

• Your name, address, and tax ID

• Description of the equity (type and number of shares)

• Date the equity was granted

• Tax year of the election

• Vesting conditions or restrictions

• Fair market value (FMV) at grant

• Amount you paid (if any)

Accuracy matters. Errors here can invalidate the election.

Step 4: Review the valuation carefully

This step is often overlooked.

Your tax is based on the fair market value at the time of grant, so:

• Confirm the valuation with your company

• Ensure it matches board-approved pricing

• Double-check the grant date

This is what determines your upfront tax cost.

Step 5: Sign and date the election

The election must be:

• Signed

• Dated

You are declaring the information is accurate under penalty of perjury.

Do not skip this step.

Step 6: Mail it to the IRS

You must send the completed form to the IRS office where you file your taxes.

Best practice:

• Use certified mail

• Keep proof of delivery

• Avoid last-day mailing risk

There is no online submission for this filing.

Step 7: Meet the 30-day deadline

This is critical.

You must file the election within 30 days of the grant date.

• No extensions

• No exceptions

• Missing it = losing the tax benefit

If day 30 falls on a weekend or holiday, the next business day is accepted.

Step 8: Send a copy to your company

You must also provide a copy to:

• Your employer or issuing company

This ensures internal records match your tax election.

Step 9: Keep copies for your records

Keep everything.

At minimum, store:

• Signed election (Form 15620 or letter)

• Proof of mailing

• Grant documents

• Valuation details

You may need this during audits, fundraising diligence, or an exit.

Quick checklist before filing

Before you send your 83(b) election, confirm:

• Equity is eligible

• Form is fully completed

• Valuation is accurate

• Signature is included

• Filing is within 30 days

• IRS mailing address is correct

• Copy sent to your company

• Records are saved

Important update

Earlier guidance often states there is no official IRS form.

This is no longer fully accurate.

The IRS now provides Form 15620, which simplifies the filing process—though written statements are still accepted.

The 30-day 83(b) election deadline you can’t miss

Timing is critical.

You must file your 83(b) election within 30 days of the grant date.

Key points:

• The deadline is strict and non-extendable

• Late filings are not accepted

• Missing the deadline means losing the tax benefit permanently

Because of this, founders and employees should prepare the election immediately after receiving equity.

How Commenda helps founders manage equity and compliance

Managing equity, tax elections, and compliance across jurisdictions can quickly become complex, especially for global startups.

Commenda helps founders and finance teams:

• Structure equity and compensation strategies

• Stay compliant with tax and reporting requirements

• Coordinate with tax advisors and legal experts

• Maintain audit-ready documentation

• Manage cross-border compliance as companies scale

Whether you’re issuing equity, expanding internationally, or navigating tax obligations, Commenda provides the infrastructure and expert support to stay compliant and make informed decisions.

Frequently asked questions about the 83(b) election

What happens if I don’t file an 83(b) election?

You will be taxed at each vesting event based on the fair market value at that time, which may result in higher taxes if the company grows.

Can I revoke an 83(b) election?

In most cases, no. Once filed, the election is generally irrevocable unless there is a specific IRS-approved reason.

Do I need a lawyer or tax advisor to file?

While not required, it is strongly recommended to consult a tax advisor to ensure the election aligns with your financial situation.

Is there a cost to filing an 83(b) election?

There is no IRS filing fee, but you may incur costs if you seek professional assistance.

Does an 83(b) election apply to RSUs?

No. RSUs (Restricted Stock Units) are not eligible because they are not considered property at the time of grant.

What proof should I keep after filing?

You should retain a copy of the signed election and proof of mailing (such as certified mail receipt) for your records.

Can international founders file an 83(b) election?

Yes, if they are subject to U.S. tax rules. However, cross-border tax implications should be carefully reviewed with an advisor.

When should I consider not filing an 83(b) election?

If the share value is already high, or if there is significant risk of forfeiture, filing may not be beneficial.