Reducing the Tax Impact of Equity Compensation: The 83(b) Election

Jan 20

Employees or company founders that receive equity compensation often must cope with complex tax rules. Utilizing the 83(b) election is a valuable method of reducing tax liabilities, though there are some important caveats.

In this piece, we break down what it is and what you can do about it.

What Is the 83(b) Election?

The 83(b) election is a set of regulations under the Internal Revenue Code (IRC) that enables an employee, or startup founder, to be taxed on the total fair market value of restricted stock or options when they are granted rather than later upon vesting by sending a letter to the IRS.

Restricted shares are unregistered shares of ownership in a corporation issued to corporate affiliates, such as executives and directors. Along with the value of restricted stock, you can include the spread of your options in your election, i.e., the difference between the strike price—the options’ exercise price—and the shares’... ...