Section 83(b) election for founders: the 30-day checklist

When a founder receives stock that vests over time, the tax rules can treat each vesting date as a taxable event, measured by the stock's value at that time. If the company grows, that value can be far higher than the price paid. A Section 83(b) election lets the founder choose to be taxed at the time of the grant instead, on the difference between the fair market value then and the price paid.

For founders who buy stock at a nominal price when the company is worth little, the difference is often zero. Filing locks in that low starting point and starts the holding period for capital gains treatment.

The election must be filed no later than 30 days after the stock is transferred to you. The IRS does not grant extensions, and a missed deadline cannot be fixed by explanation. Put the date in your calendar the day you sign the stock purchase agreement.

Confirm the date the stock was issued. Prepare the election with the information the IRS requires, such as your name, address, the property, the date, the fair market value, the amount paid, and the vesting terms. Follow the IRS's current instructions for how to file, and use a method that gives you proof of timely filing. Give a copy to the company.

Keep the filed election, proof of filing and the date, the stock purchase agreement, the valuation support for the fair market value, and a note of the vesting schedule. You will need these at an exit, in diligence, and when you prepare your own tax return.

If your stock is fully vested at grant, there is nothing to elect. If you receive options, the rules are different. The election is for restricted stock. Check with a tax advisor if you are unsure which you have.