If you are a founder of a brand new company pursuant to a multi-year vesting agreement, or are an employee with stock options, then you may want to consider taking the IRS Section 83(b) election. Under both scenarios, taxes, including federal, Social Security, Medicare, and any other state or local taxes, must be paid on the vesting date of the stock.

The main advantage of the 83(b) election is that you will be taxed on the value of the stock at the date the stock was granted to you rather than on the date the stock vests, when the stock price has likely increased in value. Thus, the 83(b) election mitigates the tax burden for the difference between the stock price on the grant date and the vesting date. For example, if the stock on the grant date has a value to $1,000, a stockholder who files an 83(b) election will receive tax treatment on the value at $1.00 instead of paying tax on the vesting value of $1,000. Without taking the election, the stockholder will pay taxes on the vesting value of $1,000.

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