If you’re building or joining an early-stage company where equity compensation is part of the package, you’ve probably heard terms like 83(b) election and 409A valuation, vesting schedules and tax traps. One of the trickiest but most impactful decisions founders and employees can make in a startup’s life is timely filing an 83(b) election. This blog breaks down what it is, why it matters, the steps to file, common pitfalls to avoid, and how valuation fits into the picture, all without getting lost in tax jargon.

What Is an 83(b) Election?

An 83(b) election is an IRS tax provision that allows someone who receives restricted stock or other equity that vests over time to elect to be taxed on the fair market value of the shares at the time of grant rather than when they vest. In simple terms, you ask the IRS to recognize the value of your stock now instead of later. If your startup grows (and hopefully it does!), this can lead to huge tax savings because you lock in a lower valuation early on.

Imagine you get 100,000 shares that vest over four years. Without an 83(b) election, you could owe taxes on income as those shares vest, potentially when they’re worth way more than at grant. With the 83(b) election, you pay taxes upfront on what the shares are worth today, which is usually much lower. Over time, almost all of your gain becomes a long-term capital gains rather than ordinary income.

Why Filing Deadlines Matter

The IRS gives a strict deadline for submitting an 83(b) election checkbox, 30 days from the date of the stock grant. There are no extensions, no grace period, no “close enough.” If you miss it, you lose the opportunity forever. That means even a day late can cost you tens or hundreds of thousands in extra taxes if your startup takes off. Filing early (and ideally consulting your accountant or tax attorney) is non-negotiable if you plan to take advantage of this election.

Technically, you must submit a written election to the IRS, provide a copy to your employer, and keep one for your personal records. Today, most companies prepare 83(b) election forms and share them with new equity holders to ensure you don’t miss this tight window, but you are ultimately responsible.

How Valuation Plays Into This

When it comes to pricing your stock at grant, startups usually rely on a formal 409A valuation for startups to determine the fair market value (FMV) of common stock. While the 83(b) election is about timing and tax treatment, the price you pay taxes on comes from the FMV, and for startups, that’s not just pulled out of thin air.

A credible 409A valuation helps your company justify the stock price used in grant agreements, making it defensible if the IRS ever questions your valuation. It also ties into broader planning around employee offering prices, stock option strike prices, and cap table dynamics. Leaning on professional startup stock valuation services ensures you’re starting from a sound base when making decisions like whether or not to file an 83(b) and at what price.

Step-by-Step: How to File an 83(b) Election

Here’s a practical walk-through of the process so you’re not scrambling on day 29:

  1. Get the Form from Your Company: Typically, your startup’s finance or legal team will provide you with an 83(b) election form when your equity grant is issued. It spells out the grant date, number of shares, and valuation.
  2. Review with Your Tax Advisor: Before you commit, it’s worth revisiting with your CPA or tax lawyer, especially if you’re a founder dealing with large stock grants or complex vesting terms.
  3. Prepare the Written Election: The IRS requires certain information: your name and address, description of the property (type of equity), the date of grant, the fair market value at grant, the amount you paid (if any), and a statement that you’re making the election under Section 83(b).
  4. Mail It Within 30 Days: This is the critical part: your signed election must be postmarked within 30 days of the grant date. Certified mail with a return receipt is recommended for proof.
  5. Send a Copy to Your Employer: The IRS expects your employer to have a copy, which is especially important if your payroll or benefits team needs to handle future reporting.
  6. Keep Copies for Your Records: Also, send a copy with your tax return for that year. Your future self will thank you.

Common Mistakes to Watch Out For

Even seasoned founders and employees trip up on a few recurring issues:

  • Missing the Deadline: The most common error is simply filing late. Because the 30-day deadline is firm, skipping a single day can eliminate your tax savings opportunity.
  • Incorrect Dates: An 83(b) election is all about timing. If you accidentally use the wrong grant date or even the wrong postmark date, the IRS could reject your election.
  • Not Understanding Tax Liability: Some people simply assume 83(b) elections always make sense. If your FMV is already high at grant, filing may not be beneficial. Again, talk to a tax pro.
  • Losing Documentation: Keep every copy, such as originals, certified mail receipts, and employer acknowledgments. You may need these years later if the IRS audits.
  • Ignoring Valuation Backing: While the 83(b) election revolves around timing, the price you’re taxed on is rooted in startup valuation work. Relying on informal or outdated pricing without solid startup equity valuation or company valuation for startups can invite trouble.

Sharp 409A: Your Partner for Audit-Ready Valuations

At Sharp 409A, we believe confident equity and tax decisions begin with dependable numbers. Since 2014, we’ve supported founders and private companies with fast, cost-effective 409A valuations powered by in-house technology and deep analyst expertise. Our audit-ready reports establish defensible fair market value for common stock, essential when setting grant prices or planning steps like an 83(b) election. With a streamlined process, companies share their details and receive an AICPA-compliant valuation in as little as two days at flat, transparent pricing. From pre-seed to pre-IPO, hundreds of startups rely on our clarity, speed, and accuracy. When you choose Sharp 409A for startup stock valuation services, you gain a trusted partner focused on precise analysis and long-term strategic growth. Contact us today for a fast, reliable, audit-ready 409A valuation.

Frequently Asked Questions 

1: What is an 83(b) election and why is it important?

An 83(b) election lets you pay taxes on restricted stock at grant time, often reducing future tax liability if your startup’s value increases significantly.

2: What is the deadline to file an 83(b) election?

You must file the signed 83(b) election with the IRS within 30 days of your stock grant date. Missing this deadline removes the tax benefit permanently.

3: Does everyone receiving startup equity need to file an 83(b) election?

Not always. It’s typically useful when stock is subject to vesting and has a low initial value. Consulting a tax advisor before filing is recommended.

4: How does a 409A valuation relate to an 83(b) election?

A 409A valuation determines the fair market value of common stock, which affects the price used when calculating taxes during an 83(b) election.

5: What happens if I forget to file the 83(b) election?

You’ll be taxed as shares vest at potentially higher values, leading to larger ordinary income taxes instead of lower long-term capital gains treatment.

Sharp 409A

Founded in 2014, Sharp 409A began with a mission to simplify 409A valuations for global startups. With 15+ years of experience, a presence in 13+ countries, and over 1,000 valuations covering assets worth 200B+ USD, we deliver independent, IRS-compliant, audit-ready fair-market value reports that companies can confidently rely on.