83(b) Election
A one-time tax filing made within 30 days of a restricted stock grant that locks in income tax at today's low grant-date value — converting all future appreciation from ordinary income rates to capital gains rates and starting the QSBS holding period clock.
When a company grants you restricted stock with a vesting schedule, the tax code's default rule is: you owe income tax when the restrictions lift and you have "earned" the stock. The income is measured at the stock's fair market value at vesting — not at the much lower value when it was granted.
So if you receive 500,000 restricted shares today at $0.10 per share (the par value), and those shares vest four years from now when the company has grown and each share is worth $15, your tax bill at vesting is based on $15 per share: $7.5 million of ordinary income taxed at up to 37% federal — a federal tax bill of approximately $2.775 million. On stock you may not have sold yet. Potentially on a private company where the only way to get that cash is to sell shares you do not want to sell.
Section 83(b) of the tax code gives you an alternative: file a one-page election within 30 days of the grant and elect to recognize the income right now — at the grant-date value, not the future vesting value.
If the stock is worth $0.10 per share at grant, you pay ordinary income tax on $0.10 per share now. On 500,000 shares: $50,000 of ordinary income, approximately $18,500 in federal tax at 37%. That is the entire income tax obligation on those shares.
From that point forward, all appreciation belongs to you as a capital asset. When the stock grows from $0.10 to $15 and eventually to $30 at acquisition, all of that $14.90-per-share growth is a capital gain — taxed at the 23.8% long-term capital gains rate if held more than one year from the grant date, not at the 37% ordinary income rate. On 500,000 shares, the difference between ordinary income and capital gains rates on $14.90 per share is $982,000 in additional after-tax proceeds — from a single election filed within 30 days of the grant.
For founders of qualifying C corporations, Section 1202 allows up to 100% of capital gains to be excluded from federal income tax — up to $15 million per issuer — if the stock has been held for at least five years. The holding period for QSBS starts when the stock is "acquired" — which, with an 83(b) election, is the grant date.
Without the 83(b) election, each vesting tranche starts its own holding period when it vests. A four-year vesting schedule means the last tranche does not start its QSBS clock until year four — requiring another five years of holding after that, meaning nine years from founding before the last shares qualify for full exclusion.
With the 83(b) election filed at grant, the entire holding period runs from day one — and the full exclusion is potentially available five years from the grant date. For a company that exits in year six or seven, the difference between having filed the 83(b) and not having filed it can be the entire QSBS exclusion — potentially $2 to $3 million in avoided capital gains tax.
The 30-day filing deadline is absolute and non-negotiable. There is no extension. No hardship exception. No retroactive relief. If you miss it, the election cannot be made. This is the most time-sensitive filing in the entire tax code for startup founders.
- Lock in ordinary income tax at today's low grant-date value — pay tax on $0.001 per share today instead of $15 per share at vesting. For early-stage companies, the tax cost at grant can be negligible.
- All future appreciation from grant date to sale is taxed at capital gains rates — not ordinary income rates. The difference (37% vs. 23.8%) can represent millions of dollars on a significant exit.
- Starts the QSBS holding period at the grant date — potentially achieving the 5-year threshold for full exclusion years earlier than if each vesting tranche started its own clock.
- Starts the long-term capital gains holding period at the grant date — so shares sold more than one year after the grant qualify for long-term rates, even if they have not yet fully vested.
- The amount of ordinary income recognized at grant becomes your cost basis — reducing the recognized gain when you eventually sell.
- The 30-day deadline is absolute — no exceptions, no retroactive relief, no court-granted extensions. If the election is not postmarked within 30 calendar days of the grant date, the opportunity is permanently lost.
- If you leave before vesting and forfeit shares, you do not recover the taxes paid at grant — you have a capital loss equal to the price paid for the forfeited shares, which may only be usable against capital gains, not ordinary income.
- Tax is owed at grant even without cash to pay it — for private company stock, the ordinary income recognized at grant may require paying out-of-pocket even before the stock is saleable. Ensure you have the cash before filing.
- If the company fails, the stock becomes worthless, and your total loss is a capital loss equal to the amount paid — not a refund of the income taxes paid at grant.
Receive the restricted stock grant — contact us immediately
The moment you receive a restricted stock grant agreement, contact us. Do not wait until you understand the terms completely. Do not wait until your next scheduled meeting. The 30-day clock is running from the date of the grant agreement, and we need time to review the terms, assess the economics, prepare the election, and file it well before the deadline. Same-day or next-day contact is ideal.
You contact us — Shurek reviews the grant documents immediatelyWe assess the economics and advise on whether to elect
We review the grant agreement: number of shares, grant date, vesting schedule, grant-date fair market value, purchase price (if any), and whether the company is a qualifying C corporation for QSBS purposes. For early-stage companies with stock at or near par value, the election is almost always the right choice — the tax cost is negligible and the benefit is enormous. For later-stage private companies where shares are already valued at significant amounts, the analysis is more nuanced and we model both paths.
Shurek — completed within 1 to 2 days of receiving the grant documentsPrepare the 83(b) election statement
The 83(b) election is a specific document with required content: your name, address, and Social Security number; a description of the property received; the grant date and the tax year; the nature of the restrictions; the fair market value at grant; any amount paid for the property; and a representation that you are making the election under Section 83(b). We prepare this document to meet all IRS regulatory requirements. Any error or omission can invalidate the election.
Shurek prepares the election statementFile by certified mail — within 30 days
You sign the election. We send it to the IRS Service Center where you file your return by certified mail with return receipt requested. The postmark date is what matters — it must be within 30 calendar days of the grant date. We retain the USPS certified mail receipt and tracking number permanently in your file. If the IRS ever questions whether the election was timely filed, we have physical proof of the mailing date.
Shurek files — we retain the proof of mailing permanentlyDeliver copy to employer and retain in file
A copy of the signed election must be provided to the company (your employer). They should acknowledge receipt in writing — we recommend requesting written confirmation. Another copy is retained in your permanent file with us. At a sale or IPO years in the future, you may need to prove this election was timely made — the copies and mailing proof are your documentation.
Shurek coordinates — you deliver to your employer and confirm receiptReport on tax return and track QSBS holding period
The ordinary income recognized at grant (fair market value minus any amount paid) is reported on your Form 1040 for the grant year. This is typically a very small amount for early-stage companies. We then track the QSBS holding period from the grant date, alerting you at the 3-, 4-, and 5-year thresholds for the tiered exclusion percentages.
Shurek — reported on your Form 1040; QSBS tracking maintained in your file| Form | Name | When Due | What It Does and Why It Matters |
|---|---|---|---|
| 83(b) Election Statement | Election Under Internal Revenue Code Section 83(b) | Within 30 days of grant — no exceptions, no extensions | The election itself — the single most critical filing in this strategy. One page, specific format, sent by certified mail to the IRS. This filing determines everything that follows: whether future appreciation is ordinary income or capital gains, when the QSBS holding period begins, and whether the founder's exit will be taxed at 37% or 0%. Missing this deadline means none of those benefits are available. We treat this as our highest-priority deadline for any client who receives a restricted stock grant. |
| 1040 | Individual Income Tax Return | April 15 of the grant year (extension to October 15) | The ordinary income recognized at the grant date is reported on your Form 1040 for the grant year — typically a small amount for early-stage companies where shares are valued at or near par value. This amount becomes your cost basis in the shares. We report it on the appropriate line (wages if received as compensation from an employer, or other income if as a founding grant) and ensure your W-2 or 1099 from the company reflects it consistently. |
| 8949 / Schedule D | Sales and Other Dispositions of Capital Assets | Filed with Form 1040 in the year of any sale | When you eventually sell the shares — in an acquisition, secondary transaction, or public market — the sale is reported here. Your cost basis is what you paid plus any ordinary income recognized at grant via the 83(b) election. The holding period runs from the grant date (because of the election), not the vesting date. The QSBS exclusion, if applicable, is claimed here with the appropriate exclusion code. We prepare this return and ensure the QSBS exclusion is properly documented and claimed. |
| 709 | Gift Tax Return — if shares are gifted before sale | April 15 of the year after any gift (extension to October 15) | If you gift shares to family members or trusts before the sale to multiply the QSBS exclusion, a gift tax return documents each transfer. The gifted shares carry over your grant-date holding period — so a recipient of shares you have held for 4 years immediately has a 4-year holding period and qualifies for the 75% QSBS exclusion. We prepare the 709 for any pre-sale stock gifts. |
Immediate review of grant terms and economics when you notify us of a grant. Preparing the election in the required format. Filing by certified mail within the 30-day window. Retaining proof of mailing permanently. Reporting the grant-year income on your Form 1040. Tracking the QSBS holding period and alerting you at each threshold. Reporting the sale and claiming the QSBS exclusion at exit.
One thing, immediately: contact us the day you receive a restricted stock grant. Not next week. Not at your next scheduled meeting. The same day or the next day. The 30-day deadline is the most unforgiving in the tax code. One phone call or email at the moment of the grant is all it takes from you to protect what can be a seven-figure tax opportunity. After that, sign the election when we send it to you and deliver a copy to your employer. Everything else is our responsibility.
The 83(b) election has the single most unforgiving deadline in the tax code. The entire calendar revolves around one date — 30 days from grant — and everything that must happen before it.
CONTACT US IMMEDIATELY
The 30-day clock starts the moment the restricted stock grant agreement is executed. Contact us the same day or the next business day. Every day of delay is a day closer to the irreversible deadline. We need time to review the terms, assess the economics, prepare the election document, and file it well before the deadline.
We Prepare the Election Statement
We review the grant agreement, determine the fair market value at grant date, calculate any ordinary income recognized, and prepare the 83(b) election statement in the format required by IRS regulations. This typically takes 1 to 2 business days once we have the grant documents. We send you the prepared election for your signature.
You Sign and Return the Election
You review, sign, and return the signed election to us. We then prepare the certified mail package for IRS filing. Do not delay returning the signed election — we need time to file before the deadline.
Filed by Certified Mail to IRS
We mail the signed election to the IRS Service Center by USPS Certified Mail with Return Receipt Requested. The postmark date is what matters — it must be within 30 calendar days of the grant date. We retain the tracking number and receipt permanently in your file. We also simultaneously send a copy to your employer.
Form 1040 Reports Grant-Year Income
The ordinary income recognized at grant (fair market value minus amount paid) is reported on your Form 1040 for the grant year. For early-stage companies with stock at or near par value, this is typically a negligible amount. We ensure it appears consistently with whatever the company reports on your W-2 or as other compensation.
QSBS Threshold Notifications
We alert you when your shares cross the QSBS holding period thresholds — 50% exclusion at 3 years, 75% at 4 years, 100% at 5 years from the grant date. These milestones matter for timing any liquidity event. A sale before year 5 may qualify for partial exclusion; waiting until year 5 achieves full exclusion on up to $15M of gain.