Joined a Startup? The 'Section 83(b) Election' Deadline Could Save You Millions in Taxes

Joined a Startup?

Congratulations! You just joined a hot new startup, or maybe you founded one. As part of your compensation, you received a generous package of Restricted Stock Awards (RSA) or exercised your options early.

You dream of the day the company goes public (IPO) and your stock is worth millions.

But there is a ticking time bomb in your equity agreement. If you do not file a specific form with the IRS within 30 days of receiving your stock, your dream payout could turn into a tax nightmare. This form is called the Section 83(b) Election.

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1. The Problem: Tax on "Vesting" vs. "Grant"

To understand why this matters, you must understand how the IRS views restricted stock.

Without 83(b) (The Default Trap)

If you do nothing, the IRS taxes you every time your shares vest.

• Year 1 (Grant): You get the stock. Value is $0.01 per share. Tax: $0.
• Year 4 (Vesting): The company is doing great. The stock is now worth $10.00 per share.
• The Tax Bomb: You owe ordinary income tax on that $10.00 value, even if you haven't sold the stock yet. You have to pay cash taxes on "paper gains."

With 83(b) (The Smart Move)

If you file the election, you tell the IRS: "I want to be taxed on the ENTIRE value of the stock right now, today."

• Day 1: You pay tax on the current value ($0.01/share). Since $0.01 is negligible, your tax bill is basically $0.
• Year 4: The stock hits $10.00. Tax Due: $0. You already paid your taxes on Day 1.
• Exit (Sale): When you finally sell years later, you only pay Long-Term Capital Gains Tax (20%) instead of Income Tax (37%), saving you a fortune.

⚠️ Critical Check: Do You Have RSUs?

STOP. If your grant says "Restricted Stock Units" (RSUs), this strategy likely does NOT apply to you. 83(b) is for real stock (RSA) or early-exercised options only. Filing 83(b) for RSUs is a common mistake that is invalid. Check your contract.

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2. The "30-Day" Hard Deadline

This is the most strict deadline in the entire tax code.

⚠️ No Exceptions, No Extensions

You must file the 83(b) form within 30 days of the date the stock was transferred to you.

• If you file on Day 31, it is invalid.
• There is no "late filing relief."
• If you miss it, you are stuck with the default tax treatment forever.

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3. Step-by-Step Filing Guide (2026 Update)

Good news: As of recently, the IRS has modernized this process. You now have two options:

1. Option A (Electronic Filing - Preferred): You can now file IRS Form 15620 electronically via the IRS website. It provides an immediate digital confirmation, eliminating the risk of lost mail.
2. Option B (The Old Way - Certified Mail): If you prefer paper trails:
   • Fill out the 83(b) Election template (ask your company's lawyer).
   • Mail it via USPS Certified Mail with Return Receipt. This green card is your absolute proof of timely filing.
3. Crucial Step: Regardless of how you file, you MUST send a copy to your employer for their payroll records.

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4. The Risk: What If the Stock Goes to Zero?

Is there a downside? Yes. If you pay tax on the stock upfront (say, you paid $5,000 in taxes), and the company later goes bankrupt, you cannot claim a refund for those taxes.

However, for most early-stage founders, the upfront tax cost is so low (often near zero) that the risk is negligible compared to the massive potential tax savings.

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30 Days to Save Millions

If you signed your stock grant paperwork 20 days ago, stop reading this and file immediately.

The 83(b) election is essentially a "free lunch" from the IRS for risk-takers. Don't let laziness or a missed deadline cost you your future fortune.