May 10th, 2023 Posted in Budget, Accounting

Unlocking the Benefits of the 83(b) Election: A CPA's Guide for Startup Founders and Early-Stage Employees

Guide for Startup Founders and Early-Stage Employees

Are you a startup founder or early-stage employee who recently received stock options? If so, you may want to consider making an 83(b) election.

What is an 83(b) election, you may ask? It's a tax election that allows you to pay taxes on the value of your stock options at the time they are granted, rather than at the time they vest. This can result in significant tax savings if the value of your stock increases over time.

As a CPA with extensive experience working with startups and early-stage companies, I highly recommend making an 83(b) election if you are eligible. Here are a few reasons why:

  1. You can lock in a lower tax rate: By making an 83(b) election, you pay taxes on the value of your stock options at the time they are granted, which may be at a lower tax rate than when the options vest. This can save you money in the long run, especially if the value of your stock increases significantly.
  2. You can avoid a tax hit when your options vest: When your stock options vest, you may be hit with a significant tax bill, especially if the value of your stock has increased since the time they were granted. By making an 83(b) election, you can avoid this tax hit and have peace of mind knowing that your taxes are taken care of.
  3. You have more flexibility with your stock options: Making an 83(b) election gives you more flexibility with your stock options. For example, if you decide to leave your company before your options vest, you can still keep them without having to pay taxes on them. This can be a huge benefit if you're considering leaving your company for any reason.

Overall, making an 83(b) election can be a smart financial move for anyone who receives stock options. If you're interested in learning more about this tax election or need help making the election, please don't hesitate to contact me. As a CPA who specializes in working with startups and early-stage companies, I can help you navigate the complexities of the tax code and make the best decisions for your financial future.