83(b) election calculator

What an 83(b) election does

When you receive restricted stock or early-exercise options, you normally pay ordinary income tax as the shares vest - on the spread between their value then and what you paid. An 83(b) election lets you flip that: pay the ordinary tax now, on the much smaller spread at grant, and have all future appreciation taxed as a capital gain instead. For low-priced startup equity, the tax now can be a few dollars while the savings later can be enormous. This calculator compares the two paths.

How the comparison works

• With 83(b): ordinary tax now on (FMV at grant − strike) × shares. The clock for long-term capital gains starts immediately.
• Without 83(b): ordinary tax at vest on (FMV at vest − strike) × shares - usually much larger.
• The appreciation between grant and vest is taxed as ordinary income if you do nothing, or as a capital gain if you elect.

Worked example

10,000 shares of a startup, FMV $0.10 at grant, $0 strike, expected to be worth $5.00 at vest, a 37% ordinary rate and 20% capital gains rate:

• Tax now with 83(b): $0.10 × 10,000 × 37% = $370
• Tax at vest without it: $5.00 × 10,000 × 37% = $18,500
• Appreciation taxed as a capital gain instead of ordinary: $49,000
• Estimated saving from electing: $49,000 × (37% − 20%) = about $8,330

Paying $370 now to save thousands later is the whole case for 83(b) on low-priced equity.

The risks

The election is powerful but not free:

• You pay tax on shares that may never vest. Leave early and you cannot get that tax back.
• The value could fall. You prepaid tax on a value the stock may never reach again.
• It is irrevocable and must be filed within 30 days of grant or early exercise - miss the window and the chance is gone.

When to elect and when to skip

• Elect when the grant-date value is very low and you strongly believe in the upside - classic early startup equity.
• Skip when the spread at grant is already large (the tax now is too high) or the outcome is very uncertain.

Common mistakes

• Missing the strict 30-day filing deadline.
• Electing on already-valuable equity where the up-front tax is painful.
• Forgetting that the tax paid is gone if you leave before vesting.

If your equity is incentive stock options, model the AMT separately with the ISO exercise tax calculator; to compare option types, use the stock option tax calculator.