Compare the lifetime tax with vs without an 83(b) election. The election pays tax now on the current FMV; without it, tax is paid at each vesting at the (typically higher) vest FMV.
Recommendation
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Total tax WITH 83(b)
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Total tax WITHOUT 83(b)
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A bet on your own company's stock
An 83(b) election is a one-page letter to the IRS that changes when you are taxed on restricted stock or early-exercised options. The default rule taxes you as the shares vest, at each tranche's fair-market value, as ordinary income. The election flips that: you choose to be taxed now, on today's value, and accept ordinary tax on the spread between fair market value and what you paid at grant. When today's value is tiny and the company is expected to grow, that is a brilliant trade. You convert what would have been a large pile of ordinary income at vesting into a long-term capital gain measured from the grant date.
This tool is for founders and early employees holding restricted stock or early-exercisable options, not for standard RSUs, which are not eligible. It compares lifetime tax under both paths so you can see the size of the bet in dollars before the 30-day window closes.
100,000 founder shares, penny strike
Consider a founder granted 100,000 shares when both the fair-market value and the strike are $0.01. The shares are projected to be worth $10 at full vesting and $20 when sold. With an 83(b) election, the ordinary spread today is zero, because grant value equals strike, so there is no tax now. The entire move from $0.01 to $20 becomes long-term capital gain, taxed at 20 percent on roughly $1,999,000, which is about $399,800. Skip the election, and at vesting you owe ordinary tax at 32 percent on the jump to $10, about $319,680, plus 20 percent capital gain on the $10 to $20 climb, another $200,000, for $519,680 total. Filing saves about $119,880.
| Tax event | With 83(b) | Without 83(b) |
|---|---|---|
| Ordinary tax at grant or vesting | $0 | $319,680 |
| Long-term capital gain at sale | $399,800 | $200,000 |
| Total lifetime tax | $399,800 | $519,680 |
| Savings from filing | $119,880 | |
The bars below show total tax under each path, with the green slice marking what the election saves.
Why RSUs are left out of this decision
A frequent source of confusion is whether restricted stock units qualify for an 83(b) election. They do not. The election applies to property you receive and own, such as a restricted stock award or shares from an early-exercised option, where you hold actual stock subject to a vesting condition. RSUs are a contractual promise to deliver shares later, not present ownership, so there is nothing to make the election on until the units settle into real shares. If your equity is RSUs, this tool is the wrong one; you are taxed on the value at settlement as ordinary income and there is no early-payment lever to pull. Knowing which instrument you actually hold is the first step, because the entire 83(b) strategy hinges on having genuine stock with a low current value.
The downside nobody mentions until it hurts
The election is a wager, and it is non-refundable. If you pay tax up front and the company folds, you cannot claw that money back. If you leave before your shares vest, you forfeit stock you already paid tax on. The penny-strike founder above has almost nothing at risk because the upfront tax is zero, but an early-exercising employee with a real bargain element could write a meaningful check now for shares that may never become liquid. The election shines brightest when the current spread is small; the bigger that spread, the larger the bet you are placing on the company's survival.
Practical questions
What is the deadline, exactly?
Thirty days from the date you receive the restricted stock or early-exercise the option. The deadline is statutory and unforgiving. Mail it certified with a return receipt, keep a copy for your records, and include another copy with that year's tax return. There is no late-filing relief if you miss it.
Does an 83(b) help with the long-term capital gains holding period?
Yes. Filing starts your capital gains holding clock at the grant date rather than at each vesting event. That makes it far easier to clear the one-year mark for long-term treatment by the time you sell, which is part of why early founders almost always file.