Tax
Definition
An 83(b) election is a tax filing that allows founders and early employees to pay taxes on equity at its current (low) value rather than when it vests — potentially saving significant taxes as the company grows.
Under normal tax rules, restricted equity is taxed as ordinary income when it vests, at its value at the time of vesting. If a company's value grows significantly before vesting is complete, this can mean a large, unexpected tax bill — sometimes in a year with no corresponding cash event. An 83(b) election, filed within 30 days of receiving the equity, taxes the grant at today's value (often near zero for new companies) and converts future appreciation to capital gains rather than ordinary income. Missing the 30-day filing window is irreversible and is one of the most costly early-stage startup mistakes a founder can make.
An 83(b) election is one of the highest-leverage tax decisions a founder will ever make — and one of the most time-sensitive. It must be filed within 30 days of receiving equity and sent to both the IRS and your company. Many founders miss this window simply because no one told them about it. A tax advisor or startup attorney should discuss this at company formation, before any equity is issued.