83(B) Election Template

This tax form gives a founder the option to pay taxes on his stock at the time of granting. It can potentially save you thousands of dollars in taxes if the company drastically increases in value.

When shares are subject to vesting, by default, the IRS treats it as a taxable event every time a portion of the shares vest. This means that whenever you have shares of stock vesting, the IRS considers as taxable income the difference between (1) the fair market value (FMV) of those shares at that time and (2) the price you paid for those shares.

When shares are subject to vesting, by default, the IRS treats it as a taxable event every time a portion of the shares vest. This means that whenever you have shares of stock vesting, the IRS considers as taxable income the difference between (1) the fair market value (FMV) of those shares at that time and (2) the price you paid for those shares.

For founders of successful startups, this can lead to a significant increase in taxes as the FMV of their stock increases. The taxable income is tied up in the form of illiquid stock, which makes it difficult for founders to be able to afford the tax increase. In addition, the process is likely to be a significant burden due to the number of times the FMV would need to be determined. For example, for 4-year straight-line vesting, the FMV would need to be determined 48 times.

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