If you have stock options and decide to exercise them early, the 83(b) election is the tax formality that makes your early exercise official to the IRS.
You must file an 83(b) election with the IRS within 30 days of completing your early exericse.
If you have stock options and want to get the full picture of how they work, read our Stock Option Starter Guide.
How do I file an 83(b) election?
- Fill out an election form and cover letter. Find an 83(b) election template online, or ask your accountant or equity strategist to populate one for you.
- Make three copies of the signed election form.
- Send the signed election form and cover letter to your appropriate IRS office, which you can find on the IRS website. Make sure to mail the envelope via certified mail and request a return receipt.
- Send a signed election form to your company.
- Keep the last signed election form with the return receipt for your personal records.
You must do all of this within 30 days of early exercising your stock options.
Don’t wait on this. A timely filing can mean the difference between paying nothing versus a huge and unexpected tax bill down the road.
Why would I want to early exercise my stock options?
Because it could minimize your stock option tax bill and keep the upfront costs of exercising low. To learn more, see "What is early exercising?"
What does the 83(b) election mean technically?
The name refers to a provision under section 83(b) of the U.S. tax code that allows you to elect being taxed on your equity compensation today versus when it vests.
By filing a 83(b) election, you can pay tax on the 409A valuation (also known as fair market value) of company shares today versus their 409A valuation in the future, which will likely be higher. The 409A valuation is reevaluated every once in a while, and grows when your company becomes more successful.