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What is an 83(b) election and when should I make one?

Answer

An 83(b) election lets you choose to be taxed on restricted equity now, at its current (often tiny) value, rather than later as it vests at potentially much higher values. It's most relevant for startup founders and early employees who receive restricted stock or who early-exercise options while the shares are worth almost nothing. Pay a small tax up front, start the long-term capital gains clock immediately, and all future appreciation is taxed at capital gains rates instead of ordinary income. The catch: you must file the election with the IRS within 30 days of the grant or exercise – miss it and you can't undo it. Also, if the company fails, you don't get the prepaid tax back. For low-value early equity, an 83(b) is often a clear win.

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