An 83(b) election is a tax provision that lets people pay income tax on restricted stock units and some non-qualified stock options at the time the equity is granted, instead of when it vests. The main requirement? You have a 30-day window from when the stock is granted to file your 83(b) election.

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Restricted stock carries conditions, typically a time period during which the equity is locked. It's common in early-stage companies as it stops someone who only works on a project for a few months from leaving and taking substantial equity with them. However, there can be tax implications.

If the company does well, holders of restricted stock may have to pay a hefty income tax bill when their stock vests. That can present a few challenges. For example, it may push you into a higher income tax bracket. You may also have to pay that tax on paper gains at a time when you can't easily sell the stock. 

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Filing an 83(b) election can ease that pressure. Filing early means you'd be taxed on a much smaller amount, assuming the company grows and the value of your equity increases. On the flip side, there are risks. If the company fails or you leave before your stock vests, you'll have paid upfront taxes that you won't be able to get back. 

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The IRS recently made it easier to file an 83(b) election. As of April 2025, you can file it online via a standardized form. However, if you misfile, you may not be eligible for the tax benefits. That, and the short filing timeframe, are reasons why it may be worth consulting with a tax professional to determine whether an 83(b) election can complement your tax strategy. 

Real-world example: with vs. without an 83(b)

The best way to understand an 83(b) election is through an example. Imagine you are involved in a promising high-growth startup. You get restricted stock that will vest in four years' time. 

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You will have to pay two types of tax on that stock: 

• Income tax, when you receive it or it vests
• Capital gains tax, when you sell it

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Submitting an 83(b) election means you can pay income tax when you receive the restricted stock rather than when it vests. Four years — a typical vesting period — is a long time in the world of startups. That could make a big difference to your tax bill. 

Let's say you receive stock with a total fair market value of $5,000. The company does extremely well. By the time the shares vest, your stock is worth $150,000. Years later, you sell all your shares for a cool $1 million. It's a very hypothetical scenario, but let's look at how an 83(b) election could save you a lot of money.

With 83(b) election: 

• You'd only have to pay income tax on the original value of your stock. Even at the highest income tax bracket of 37%, that's $1,870. 
• The highest bracket for long-term capital gains tax (assets held for a year or more) is 20%. You'd owe capital gains tax on $995,000 in gains, which comes to $199,000.
• Total tax paid: $200,870

Without 83(b) election: 

• If you have to pay income tax on the vested stock value of $150,000, you might be looking at a $55,500 bill four years into your startup journey.
• Further down the line, you'd owe capital gains tax on $850,000. At a 20% rate, that comes to $170,000.
• Total tax paid: $225,500

Entrepreneurs often have to be ninjas in keeping multiple plates spinning as they get their business up and running. Tax planning can sometimes get lost in the rush, but it's crucial. Not only can it help keep the business afloat, but it can also make a big difference to your eventual profits when you exit. Explore key tax strategies available to startup employees, including how 83(b), QSBS, and other benefits can shape your long-term outcome.

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An 83(b) election is one of several ways founders and startup employees might reduce their tax bills. Others may include issuing qualified small business stock (QSBS) and exploring any applicable tax credits. It's important to understand the rules and keep the bigger equity picture in mind when making decisions. A financial professional may help you navigate these waters and know what options are available to you.

How it connects to secondary market sales

The private secondary market has changed dramatically in recent years. Shifting private equity trends and technological changes have made private equity more accessible to a wider group of investors. For example, private stock marketplaces connect qualified investors with holders of private equity. 

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Private equity shareholders can use a pre-IPO investment platform like Augment* to sell private company shares. That can be a game-changer as they no longer need to wait for the company to go public to realize returns. Augment offers real-time pricing and a transparent fee structure, so buyers and investors can both make informed decisions. 

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For founders and employees who hold private equity, these marketplaces make it easier to access liquidity when they need it. On-paper wealth is all very well, but sometimes we need real money to buy a house or reach other life goals. 

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One of the biggest benefits of 83(b) elections here is that it starts the capital gains tax clock much earlier. Private market growth timelines — including the J-curve — can play a big role in determining when and why to file an 83(b). Short-term capital gains get taxed at a higher rate than long-term capital gains. The holding period starts when you take ownership of the shares. An 83(b) means you don't have to wait until the stock vests for that to happen.

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