83(b) Election
The 83(b) election allows employees or founders who receive restricted stock to pay taxes on the stock's full market value at the time of grant, rather than at vesting. This can be advantageous if the stock is expected to appreciate, as it locks in a lower tax rate. However, if the stock decreases in value or doesn’t vest, the individual may pay taxes on stock they don’t ultimately own.
Key Takeaways
- Enables early tax payment on restricted stock at grant.
- Beneficial if stock appreciates over time.
- Risky if the stock doesn’t vest or decreases in value.
- Common in startup compensation structures.
