Making an 83b election is like grabbing a seat when the music stops in a game of musical chairs — act fast, or you’ll pay the price later!
Being a founder of a startup is exciting. Even more so when you’re receiving stock options or equity in the company. However, as these stocks vest and become fully yours over time, they can significantly increase your tax liability.
The 83b election can save you money because you end up paying taxes on the entire value of the vested stock upfront, based on its current market value.
Optic helps founders understand and complete the 83(b) election process correctly and on time. We provide guidance on preparing the election and submitting it to the IRS, and we can help identify and correct common filing mistakes.
83(b) Election Consultation
An 83(b) election can have a major impact on the long-term tax outcome of founder equity. Deciding whether to make the election — and making sure it is handled correctly — requires understanding how vesting schedules, valuation, and future growth expectations interact.
Optic provides independent educational consultations to help founders understand the implications of making an 83(b) election. Our role is to help you evaluate whether the election makes sense in your situation and how it fits into your broader equity and tax planning.
Topics commonly discussed include:
• How 83(b) elections work
• Filing deadlines and timing requirements
• How vesting schedules affect taxation
• Valuation considerations
• When an 83(b) election may or may not make sense
• Common founder mistakes
Because Optic does not prepare or file 83(b) elections, our guidance is focused entirely on helping you make an informed decision and coordinate effectively with your attorney or tax preparer.
Why Work With Optic on 83(b) Elections?
Many founders first hear about the 83(b) election from investors or attorneys but receive little practical explanation of how the decision affects their long-term tax outcome.
Optic focuses on helping founders understand the structural implications of equity decisions so they can make confident choices early in their company’s lifecycle.
Because we do not prepare 83(b) elections or sell filing services, our consultations are focused on objective guidance rather than pushing a particular outcome. Founders can use this independent perspective to make better decisions and work more effectively with their legal and tax advisors.
Our experience working with startup founders — including international founders and cross-border ownership structures — provides practical insight into the real-world issues that often arise with equity compensation.
Our goal is simple: help founders make informed structural decisions early, when they matter most.
Have questions?
Making an 83b election allows you to be taxed on the current value upon signing the share issuance contracts, which can save the shareholders and company both substantial money by reducing annual earnings as the company becomes successful, and prevent the company having to get regular 409(a) valuations to set value for that compensation.
The 83b election creates U.S. compensation, which means that unless you live in the U.S. or are a U.S. citizen, this will not create wage-type income based on the vesting of the shares. However, it is still recommended for foreign founders to file if they plan to move to the U.S. during the vesting period, or if they live in a country that might treat this vesting of shares as income in their country of residence.
There is no IRS form 83b and instead this election is filed in a letter format. Since there is only a 30 day period to file the 83b election with the IRS, it is best to get professional help quickly to get this filed.
The primary pitfall most founders don’t realize is that they only have 30 days from signing the share issuance/vesting agreement to make that decision, they can’t wait and make this decisions at tax time. Failure to file within 30 days can have significant tax consequences. You may want to discuss the pros and cons of making an 83b election with us before you do so, or maybe you recently realized you made a mistake. Either way, we can help you avoid or fix these common errors, though some are easier to fix than others.
This is probably the most common error, and the hardest to fix. Founders have a million things to look after, and filings are the thing most founders don’t think about until the end of their fiscal year, not when shares are received. Everyone knows you pay tax at the end of the year, right? This is the one case that does not apply and decisions have to be made promptly.
If the company has not yet earned any income or received investment then you may be able to accelerate the vesting and issue the full amount of shares while the company still has no inherent value. If a vesting arrangement really is necessary, like for multiple founders, then sometimes it is best to close the company and launch a new entity, before there is value. Every situation is unique, which is why we recommend a consultation to explore your options, which depends on the financials of the business. If it looks like business is booming, you can explore a path to take advantage of that with one of our advisors.
Many small errors can be corrected by sending a letter to the IRS explaining what was incorrectly relayed. The options available depend on the type of error and the timing of the filing. Optic can review your election during a consultation and help you understand what options may be available. We can explain the relevant rules and help you determine the best next steps to discuss with your attorney or tax professional. Note that Optic provides educational consulting only and does not prepare or file corrected elections.
Depending on the value of the company now, the relationship between the founders, and your path going forward there may be solutions. Often stock issuance can be accelerated in order to make it fully issued, and get rid of the increased compensation risks. The best option may be to do nothing, but that requires a conversation based on your situation. We recommend a consultation to explore your options, as there are pros and cons to each solution. Some paths are more difficult than others.
Some non-material errors in 83b elections can be corrected, but others cannot. In some cases, missing or incomplete information may be addressed depending on the nature of the omission and how the election was originally submitted. During a consultation, Optic can help you understand whether the issue is likely to be material and what corrective approaches may be available. This can help you coordinate effectively with your attorney or tax preparer.
It is important to act quickly to correct this as soon as possible to minimize tax consequences and avoid confusion with the IRS. First, contact us so that we may review your form. We may need a consultation to discuss the scope and the impact of the error and advise you on the best course of action. Optic can review your election in a consultation and help you understand the potential impact of the error and the options that may be available. Our goal is to help founders understand the issues clearly so they can take appropriate next steps with their legal or tax advisors.
Once made, 83b elections are irrevocable. For most startups, this is not a problem because they still have zero value in the company at the time of making the 83b election, and therefore the election doesn’t have a tax consequence. Unfortunately though, if this election is made when there is a taxable amount to pay, there is no way to revoke this, and even if the stock does not vest, the tax is still due on that amount.
Though revoking the election is not possible, you often can reduce tax in other ways, such as by offsetting this tax with other losses from that business investment