83(b) Election

An 83(b) election is the IRS filing under Section 83(b) that recognizes income at grant rather than at vesting. It must be filed within 30 days of receiving restricted stock or early-exercising stock options, locking in the (typically near-zero) grant-date fair market value for income-tax purposes and starting the long-term capital-gains holding period immediately. It is one of the highest-leverage tax moves in the startup playbook and one of the most-painful mistakes to miss.

The mechanic and the math:

• Without 83(b): as restricted stock vests, the recipient recognizes ordinary income on the spread between purchase price and fair market value at each vesting date. As the company's 409A climbs, the tax bill at each vesting ev...