What Is an 83(b) Election?

An 83(b) election is a tax strategy that allows someone who receives restricted stock or other equity in exchange for services to pay ordinary income tax on the fair market value of the property at the time of grant rather than when it vests. By making the election within 30 days of receiving the property, you lock in today's (presumably low) value as your taxable income now and start the long-term capital gains clock running from the date of grant. If the company grows significantly in value, all future appreciation will be taxed at long-term capital gains rates rather than ordinary income rates — a potentially enormous tax saving. The downside is that if you leave the company before your shares vest and forfeit them, you don't get a refund of the tax you already paid. The election must be filed with the IRS within 30 days of receiving the property — there are no exceptions, and the window cannot be extended under any circumstances.