83(b) Election: What It Is, When You Need It, and How to File

You just got a term sheet. You're taking equity as part of your compensation. Maybe you're an early employee getting options or restricted stock. Maybe you're a co-founder splitting equity with your co-founder. Either way, someone's going to mention "83(b) election" in passing.

You'll nod like you know what they're talking about. You won't.

Three months later, you'll get an email reminder from your startup's finance person: "Please make sure you filed your 83(b) within 30 days of your grant date." You'll panic. Did you file it? Is it already done? Should you have done something?

Four years later, when your startup exits for $500 million, your accountant will call with news that destroys the math you've been doing in your head. You owe taxes on phantom income from the year you joined. Hundreds of thousands of dollars. All because you didn't file a two-page form you didn't understand.

This is what happens to most founders. And it's completely preventable.

An 83(b) election is literally just a form you file with the IRS. It's two pages long. It takes 20 minutes. But it fundamentally changes how much money you keep when your equity is worth something. Miss the 30-day deadline by a single day and you can't undo it. The IRS has zero sympathy.

What is this form actually doing? 

Here's the problem nobody explains clearly, when you get equity that vests over time, the IRS doesn't let you just wait until you sell it to pay taxes. Instead, as your equity vests, the IRS treats it as income. So every time your grant vests, you're supposed to pay taxes on that income based on what your equity is worth at that moment.

Sounds fine, right? Except here's what actually happens:

You join as a co-founder. You get 10% equity. The company is worth $1 million (post-money valuation). Your 10% is worth $100,000 on paper. You owe zero taxes today because the IRS only taxes you on vesting portions.

Your equity vests over four years. So one year in, you've earned 2.5% (the one-year cliff). But here's the thing: your company isn't worth $1 million anymore. It's worth $50 million now (you're crushing it). Your 2.5% is now worth $1.25 million. The IRS says: "You have income of $1.25 million this year. Pay taxes."

You don't have $1.25 million in the bank. You've never sold the equity. But you owe taxes on phantom income anyway.

Next year, your company is worth $200 million. Your remaining vesting (2.5%) is worth $5 million. More phantom income. More taxes you have to pay from your salary (if you even have one).

By the time your equity is fully vested, you've paid ordinary income taxes on millions of dollars that you haven't actually received yet. And you're stuck paying those taxes every year until you actually sell.

An 83(b) election is your escape hatch. Here's how it works:

You file the form within 30 days of getting your equity grant. You're telling the IRS: "I want to pay taxes on this entire grant today at today's valuation, not over time as it vests."

At the moment you get your equity, it's worth almost nothing. So you pay taxes on almost nothing. Let's say you owe $100 in taxes total. You pay for it. Done.

Then you wait as your equity vests and your company grows. When you finally sell your equity years later, you owe capital gains taxes (which are much lower than income tax rates). You've avoided paying ordinary income taxes on all that phantom appreciation.

That's the whole point. You pay upfront at a low valuation to avoid paying later at a high valuation.

Why does this actually matter to you?

Let me show you what this actually means for your bank account.

You're joining a startup as an early employee. You get 50,000 options with a strike price of $0.10 per share. The company just raised Series A at a $10 million post-money valuation (409A valuation: $0.50 per share for common stock).

You're vesting over four years with a one-year cliff.

Without 83(b):

Year 1: Vest 12,500 shares at $0.50 = $6,250 income. Tax: ~$2,315

Year 2: Vest 12,500 shares at $2.50 (Series B) = $31,250 income. Tax: ~$11,565

Year 3: Vest 12,500 shares at $7.50 (Series C) = $93,750 income. Tax: ~$34,690

Year 4: Vest 12,500 shares at $20 (Series D) = $250,000 income. Tax: ~$92,500

Total: ~$141,070 in phantom income taxes over four years. You haven't sold a single share.

With 83(b):

Day 1: File 83(b) on all 50,000 shares at $0.50 = $25,000 income. Tax: ~$9,250 upfront.

Years 2-4: Zero additional taxes as you vest.

At exit ($1M total, $20/share): Capital gains tax of ~$195,000.

Total Tax paid: ~$204,250

The key difference? Timing and cash flow. Without 83(b), you're bleeding $141K over four years on money you don't have. With 83(b), you pay $9,250 upfront when you can absorb it, then capital gains tax at exit.

In real successful startups exiting at huge valuations, this difference is often $500K - $2M+ in your favor.

Do you actually need this? 

File an 83(b) election if any of these apply to you:

• You're an early employee getting restricted stock or options that vest over time. This is the main one. You join a startup, you get equity, it doesn't all belong to you immediately. You need the form. Do it within 30 days.
• You're a co-founder and you took equity with vesting. More and more cofounders are doing this (which is smart). Even if you founded the company, if your equity vests over time, file the 83(b). You're in the same situation as any other founder.
• Your strike price is really low and the company is worth something. If you're getting options at $0.001 when the company is worth millions, the 83(b) election is even more critical. You're locking in massive tax savings.
• You're joining but equity doesn't vest immediately (standard). Most offers have a cliff. Year 1 nothing, then it starts vesting. File the form within 30 days of your grant date, even if you haven't vested anything yet.

Don't file an 83(b) if:

• Your equity grant has no vesting schedule. Some companies give equity that's yours immediately (basically never happens in startups, but theoretically it exists). If it's not restricted, you don't need the form.
• You're getting stock options. Standard ISOs and NSOs don't require 83(b) elections—the tax treatment happens when you exercise, not when you receive them. If your plan has any unusual restrictions on the options themselves, check with your accountant.
• You're joining so late in the company's history that vesting ends before you join. This is uncommon, but if the vesting schedule is already finished, there's nothing to elect.

The safest approach: If you get equity that vests, file the 83(b) within 30 days. If you're not sure whether you need it, file it anyway. Filing when you don't strictly need to is fine. Missing the deadline when you do need it is a disaster.

How to actually file this?

You have 30 days. Here's exactly what to do.

Get the Form (Day 1):

The IRS has a Form 83(b). Download it from IRS.gov, or ask your company's attorney or your accountant for a template. It's a PDF. It's straightforward.

If your company has an attorney, they've probably already done this a hundred times. Just ask them. Many will draft it for you.

Fill it out with the right numbers (Days 2-3):

You need three pieces of information:

1. Your information: Your name, address, SSN. Basic stuff.

2. Company information: The company's legal name, address, EIN.

3. The equity grant details: This is where most founders make mistakes. You need:

• The exact date of your grant (from your stock agreement)
• The number of shares you received
• The vesting schedule (usually 4 years, 1-year cliff, then monthly vesting)
• The fair market value per share on the grant date

This last part is critical. For a private company, your company has a "409A valuation." That's what the IRS uses to determine what your stock is worth for tax purposes. Ask your finance person or CFO. Don't guess. If the number is wrong, the IRS can challenge it later.

Get it in writing. Email from your finance team saying "409A valuation as of [date] is $[amount]." Keep that email forever.

Sign It (Day 4):

The form needs your signature and date. Some people get it notarized. It's not always required, but it's good practice for documentation purposes. Your company's attorney can tell you if they recommend it.

File It Three Places (Days 5-7):

This is the part most founders get wrong. You can't just file it with the IRS and call it done. You need to send it to three places:

Copy 1: To the IRS

This is the official filing. Check IRS.gov for the current mailing address for your state. Mail it certified mail with return receipt requested. This costs about $7 and is worth every penny because you get proof the IRS received it. Keep that receipt.

Copy 2: To your company

Email it to your CFO or finance person at the company. Tell them to acknowledge they received it and keep it in their records. You want an email trail.

Copy 3: Keep for yourself

Staple a copy to your grant agreement and store it somewhere you won't lose it. Cloud storage is fine (Google Drive, Dropbox). Print a copy and file it away too.

Keep proof of everything (Days 1-30):

• When you mail to the IRS, you get a tracking number. Keep that.
• When you email your company, they'll respond (hopefully). Keep that email.
• When you file your taxes that year, attach a copy of the form to your return.
• Seven years from now, if anyone asks about your equity, you'll have proof. That proof is worth everything.

What happens next?

After you've filed, you're done. Seriously. That's it. You filed the 83(b). The IRS has it. Your company has it. You have a copy. Now you just wait as your equity vests over the next four years.

As your stock vests, nothing special happens tax-wise (unless the company grants you more equity, which requires a separate 83(b) for that new grant). Your equity just vests on schedule. You own a larger and larger piece of the company.

The company grows. Your company's valuation goes up. Maybe way up. You don't owe any additional taxes during this time because you already paid taxes upfront.

When your company eventually gets acquired or goes public, you'll sell some or all of your equity. When that happens, you'll owe capital gains taxes on the appreciation. But because you filed the 83(b), those are long-term capital gains (assuming you held for 3+ years after vesting started), which are taxed at much lower rates than ordinary income.

That's how you end up keeping more of your money.

How Inkle helps

Inkle keeps all of this organized in one place. When you upload your equity grant documents (or connect with your equity management platform), Inkle tracks:

• The grant date and vesting schedule
• The valuation used for 83(b) purposes
• Whether the 83(b) was actually filed (and when)
• How much you've vested to date
• The tax basis of your shares

When you're preparing for exit, selling shares, or exercising options, Inkle has all the historical data your accountant needs. You don't have to dig through email archives from four years ago looking for a form you're not sure you filed.

More importantly, Inkle flags when you're approaching the 30-day deadline on new grants. If you join a company or get a new equity grant, Inkle reminds you that you have 30 days to file. 

Founders who miss the 83(b) deadline cost themselves hundreds of thousands of dollars. Founders who organize their equity properly with clear records save that money and have clean exits.

Book a demo with Inkle to ensure your equity grants, vesting schedules, and 83(b) filings are tracked and never missed.

Frequently Asked Questions

What if I got restricted stock and didn't file an 83(b) election? Can I file it now?

No. The 30-day deadline is absolute. If you missed it, you missed it. Talk to your accountant about your actual tax liability moving forward, but you can't fix the past with a late filing.

Do I need an attorney to file an 83(b) election?

Not legally, but it's a good idea. The form is simple, but the tax implications are significant. Spending $500-1000 on an attorney to get it right is cheaper than the mistakes you'd make on your own. Or ask your company's attorney to help.

What if my company is acquired before I fully vest?

Your vesting schedule usually continues through the acquisition (though the acquiring company can change the terms). The 83(b) election you filed still applies. Talk to your accountant about the tax implications of the acquisition, but the basic mechanics remain the same.

If I file an 83(b) election, do I owe taxes immediately?

You owe taxes based on the valuation of the shares on the grant date, but you don't necessarily have to pay them immediately. You'll report the income on your next tax return and pay when you file. But it's good practice to set aside cash to cover that liability. If the valuation is low (as it usually is), the amount is manageable.