Starting a company means making high-stakes decisions on short timelines. One of the most important—and most time-sensitive—is the 83(b) election. If you're receiving founder stock or restricted shares, missing this 30-day IRS deadline could turn your paper equity into a real-world tax disaster. The difference? Potentially hundreds of thousands in unexpected taxes, long before you can sell a single share.

What Is An 83(b) Election?

An 83(b) election is a simple but powerful tax filing that lets you pay taxes on restricted stock when you receive it—rather than when it vests. Think of it as prepaying taxes now, when your company is worth pennies, instead of paying later when it’s worth millions.

Here’s why it matters: Without an 83(b) election, the IRS treats each vesting event as taxable income. So if your company is worth $1 million when your shares are granted but $50 million when they vest, you’ll owe taxes on the higher valuation—even if you can’t sell the shares yet.

The 83(b) election flips that outcome. You lock in today’s low valuation, pay taxes upfront, and any future gains are taxed later at long-term capital gains rates when you actually sell the shares.

The 30-Day Rule That Can Make or Break Your Financial Future

You have exactly 30 days from when you receive restricted stock to file your 83(b) election. Not 31. Not “before it vests.” Thirty calendar days—period. If the last day happens to fall on a weekend or legal holiday, the IRS will give you until the next business day. But that’s it. Miss the deadline, and your 83(b) election is gone for good—no extensions, no exceptions.

When the 83(b) Election Makes Sense

The 83(b) election isn’t right for everyone—but when it’s right, it can be a game changer. It typically makes the most sense when:

• You expect the company to grow significantly. The election only helps if your stock becomes more valuable over time. If the company stays flat—or fails—you’ve prepaid taxes on stock that may never be worth anything.

• The current valuation is low. Paying tax on shares worth $0.01 today instead of $10 down the road could mean a six-figure difference in taxable income.

• You have cash to pay the upfront tax bill. This is a prepayment, not a deferral. You’ll owe taxes on shares you can’t sell yet, so you need liquidity to cover it.

• You’re confident you’ll stick around. If you leave the company before your shares vest, you’ve paid tax on stock you’ll never fully own.

The Numbers Behind the Decision

Let's say you receive 100,000 shares of restricted stock valued at $0.10 per share when you join a startup. Here's how the math plays out–with and without an 83(b) election:

Without 83(b) election:

• Year 1: 25,000 shares × $2.00 = $50,000 in ordinary income

• Year 2: 25,000 shares × $5.00 = $125,000

• Year 3: 25,000 shares × $8.00 = $200,000

• Year 4: 25,000 shares × $12.00 = $300,000

• Total taxable income: $675,000

With 83(b) election:

You prepay taxes based on today’s low valuation:

• Day 1: 100,000 shares × $0.10 = $10,000 in ordinary income

• Later: You pay capital gains tax only when you sell the shares—and only on the appreciation

Why It Matters:

At the 2025 federal tax rates:

• Ordinary income: up to 37%

• Long-term capital gains: capped at 20%

In this scenario, the tax savings from making the 83(b) election could easily exceed $200,000, depending on your tax bracket and how long you hold the shares before selling.

The bottom line: the 83(b) election can turn a future tax nightmare into a manageable upfront payment—if you make the right call early.

Learn more: 15 Startup Tax Deductions Your Should Know

Step-by-Step: How to Make Your 83(b) Election

Filing an 83(b) election is straightforward—but extremely time-sensitive. Here's how to do it correctly:

Step 1: Calculate Your Tax Liability 

Determine the fair market value of the shares on the date they were granted. You’ll owe ordinary income tax on the difference between the FMV and what you paid.

For example, if the FMV is $0.50 and you paid $0.01 per share, you’ll be taxed on $0.49 per share.

In late 2024, the IRS replaced the old freeform letter method with a standardized form: Form 15620.  You’ll need to include:

• Your name, address, and Social Security Number

• The tax year of the election

• A description of the shares

• The date of acquisition

• The restrictions that apply

• The fair market value

• The amount you paid (if any)

Step 3: File Within 30 Days 

You now have two filing options—either of which must be completed within thirty calendar days of receiving your shares:

• Option 1: E-file through your IRS online account. This is the fastest and preferred method, and you’ll get digital confirmation.

• Option 2: Mail the completed form to the IRS office where you file your tax return. Use certified mail and keep the receipt as proof of timely filing.

Step 4: Include Copies Everywhere 

Once your 83(b) election is filed, make sure it’s properly documented with all relevant parties:

• Attach a copy of the election to your federal tax return for the year

• Provide a copy to your employer

• Keep a copy for your own records in case of audit

Step 5: Report on Your Tax Return 

You must report the income on your tax return and pay any tax due, even if the shares are illiquid and cannot yet be sold.

Beyond Individual Elections: Company-Wide Equity Strategy

Smart startup founders don’t just file their own 83(b) elections—they build systems to help their teams make smart equity decisions, too. A strong equity compensation plan goes beyond grant documents. It means educating employees, coordinating with legal and tax pros, and building processes that scale as your cap table grows.

That includes:

• Educating team members about what 83(b) elections are and how they affect personal tax exposure, especially for early employees receiving restricted stock.

• Timing equity grants thoughtfully—ideally before a fundraising round or 409A valuation bump—so the fair market value is low when employees are making their election.

• Working closely with legal and tax advisors to ensure grant documents are compliant, vesting schedules are clear, and employees have what they need to make informed decisions.

• Creating internal systems (or using software) to track grant dates and send reminders before the thirty-day deadline hits. Missing the 83(b) window can lead to confusion, bad surprises at tax time, and real frustration for employees who thought they were covered.

Founders who treat equity like compensation—not just ownership—end up with teams that are better aligned, better informed, and more likely to stick around.

When Professional Help Pays for Itself

An 83(b) election might look simple on the surface—but when equity is involved, mistakes can get expensive. The cost of getting it wrong often dwarfs the cost of getting it right with professional help.

Here are a few situations where expert tax advice is especially valuable:

• Your company has multiple classes of stock with different rights, preferences, or conversion features

• Equity is being granted just before or after a financing event, which can change the fair market value dramatically

• You or your employees are based internationally, or subject to multiple tax jurisdictions

• You're trying to layer 83(b) timing into broader tax strategies, like charitable giving, QSBS planning, or retirement contributions

• Handling early-exercised incentive stock options (ISOs) and AMT exposure. While 83(b) elections are best known for use with restricted stock, they can also apply when employees early-exercise ISOs. The “bargain element”—the difference between strike price and fair market value—can trigger alternative minimum tax (AMT). An 83(b) election at the time of early exercise may help lock in a low AMT basis and reduce the risk of a surprise tax bill later on.

Startups need tax advisors who understand the pressure of closing rounds, managing cap tables, and preserving optionality in high-growth environments. That includes knowing when—and how—to leverage elections like 83(b), maximize R&D credits, and structure compensation to retain talent without triggering surprise tax bills.

That’s where platforms like Town come in. By combining real-time, AI-powered tax guidance with experienced startup CPAs, Town gives founders fast answers when things are straightforward—and expert-level help when they’re not. 

You don’t just need a form filled out. You need a tax partner who gets startups—and helps you make moves with confidence.

Your Next Steps

If you’ve received restricted stock recently, check the grant date right now. If you're within 30 days, deciding whether to file an 83(b) election should move to the top of your list—above hiring, product, or pitch decks. Miss the deadline, and the tax hit could be massive.

If you’re planning to issue equity to employees or advisors, make sure your equity onboarding process includes clear 83(b) election guidance. Helping your team make informed choices isn’t just a nice-to-have—it protects them and builds trust.

And if you're navigating ongoing equity planning, financings, or multi-year compensation design, work with tax advisors who specialize in high-growth startups. The decisions you make now—how and when you grant stock, structure vesting, or file elections—can add up to hundreds of thousands of dollars in tax impact later.

Startup taxation isn’t just small business taxation with more zeroes. It's faster, more complex, and more equity-driven. Don’t let tax complexity slow your momentum or cost your team money. Get the right guidance early, and stay focused on building your company.