Founder tax planning
The 83(b) election is one of the most consequential tax decisions a founder makes — and the window is 30 days.
When you receive restricted founder stock subject to vesting, you have exactly 30 days from the transfer date to file a Section 83(b) election with the IRS. File it, and all future appreciation in your shares is taxed as long-term capital gain. Miss it, and ordinary income taxes apply each time a vesting tranche lands — a potentially enormous cost on a successful exit.
What IRC § 83 says by default
Under IRC § 83, property received in connection with the performance of services is taxed at ordinary income rates when the "substantial risk of forfeiture" lapses — meaning when each block of shares vests.1 For a founder on a four-year vest, that means four separate taxable events, each priced at whatever the company is worth when the shares actually vest.
If the company's 409A is $0.0001 at founding and $4.00 when year-two vesting hits, the default rule taxes the difference as ordinary income — at rates up to 37% federal, plus state.
What the 83(b) election does
An 83(b) election opts out of the default. You elect to recognize income now, based on today's value, and treat all future appreciation as capital gain. For a founder receiving shares at incorporation, the recognizable income is usually equal to the spread between purchase price and fair market value — often zero or very close to it. The election costs almost nothing upfront and converts the entire future gain to capital-gain treatment.
A concrete comparison
Consider a co-founder who receives 5,000,000 shares at $0.0001 per share at incorporation, subject to a four-year vesting schedule with a one-year cliff. The company's 409A grows over time: $0.50 at year one, $2.00 at year two, $4.00 at year three, $6.00 at year four.
| Scenario | Ordinary income at vesting | LTCG clock starts | QSBS 5-yr clock starts |
|---|---|---|---|
| 83(b) filed on day 1 | ~$500 (5M shares × $0.0001), taxed once at grant | Date of grant — entire position | Date of grant — entire position |
| No 83(b) election | Year 1: ~$625K · Year 2: ~$2.5M · Year 3: ~$5M · Year 4: ~$7.5M — all ordinary income, each year separately | One year after each individual tranche vests | Five years after each individual tranche vests |
In the no-election scenario, the founder pays ordinary income taxes on more than $15 million of vesting-driven income across four years — before they ever sell a share. And the QSBS clock on year-four shares doesn't start until year four, meaning the last tranche needs to be held until year nine to qualify for full exclusion.
The QSBS connection
Section 1202 (QSBS) can exclude a substantial portion of founder stock gain from federal tax entirely.2 For shares issued after July 4, 2025, the One Big Beautiful Bill Act (OBBBA) raised the per-issuer exclusion cap to the greater of $15 million or 10× adjusted basis — up from the prior $10 million limit.3 The OBBBA also raised the gross asset threshold from $50 million to $75 million and added a tiered holding structure: 50% exclusion at three years, 75% at four years, 100% at five years.
The five-year (and now three- and four-year tiered) holding period begins at the acquisition date of the stock, which is the date of a valid 83(b) election. Without an election, each vesting tranche is treated as a separate acquisition on its own vest date. The practical effect: a founder on a four-year vest who misses the 83(b) election may have to wait until year nine before the final cliff tranche qualifies at 100% exclusion — and may have already paid ordinary income tax on most of the gain it would have sheltered.
How to file in 2026
The IRS released Form 15620 in November 2024 — the first standardized Section 83(b) form — with electronic filing available since July 2025.4 You can now file online via the IRS portal or by certified mail to the IRS service center where you file your federal return. Both are valid. If you file by mail, use certified mail with return receipt and keep the receipt as proof of timely filing.
- File within 30 days of the transfer date — the date the board approved the grant, not when you received the paperwork.
- Send a copy to the company (your employer of record for equity purposes).
- Attach a copy to your federal income tax return for the year of transfer.
- Report the spread between FMV and purchase price as income on that return (often $0 for founders receiving stock at par value).
Common mistakes
- Missing the 30-day window: The most costly. The deadline is statutory and the IRS does not grant extensions. Set a calendar alert the day you sign your stock agreement.
- Starting the clock from the paperwork date: The window runs from the board approval or transfer date, which may precede when you received or signed the agreement.
- Forgetting the tax-return copy: Not missing the election entirely, but creates documentation risk if the IRS questions timing years later.
- Thinking ISOs follow the same rules: Incentive stock options are governed by § 422 with their own exercise-and-hold mechanics and AMT exposure. The 83(b) election is specific to restricted stock, not to unexercised options.
When not to file
If your stock is fully vested at grant with no forfeiture risk, there is nothing to elect — § 83 does not apply to fully vested property. If the company already has a meaningful 409A valuation at the time of your grant (common in later-stage grants to executives or advisors), the ordinary income recognized upfront can be substantial, and the election may not be worthwhile unless you have high confidence in long-term appreciation. This tradeoff depends on the 409A, your vesting schedule, expected exit timeline, state tax treatment, and QSBS eligibility — a judgment call worth modeling with a founder-specialist advisor before the window closes.
Need a founder advisor before your 30-day window closes?
We match founders with fee-only advisors who understand restricted stock, the 83(b) filing decision, and how it connects to QSBS planning and long-term wealth.
Sources
Tax rules and dollar amounts verified as of June 2026. QSBS exclusion amounts reflect the One Big Beautiful Bill Act (OBBBA), enacted July 2025.
- IRC § 83 — Property Transferred in Connection with Performance of Services (Cornell LII). The default rule: property subject to a substantial risk of forfeiture is taxed at ordinary income rates when the forfeiture risk lapses (i.e., at vesting), not at transfer. The § 83(b) election opts out of this default.
- IRC § 1202 — Partial Exclusion for Gain from Certain Small Business Stock (Cornell LII). QSBS exclusion rules: original issue, C-corporation, active trade or business, gross assets ≤ $75M at issuance (post-OBBBA). Exclusion cap: greater of $15M or 10× adjusted basis for stock issued after July 4, 2025.
- QSBS Gets a Makeover: What Tax Pros Need to Know About Sec. 1202's New Look — The Tax Adviser (Nov. 2025). OBBBA changes to § 1202: $15M exclusion cap, $75M gross asset threshold, tiered holding period (50%/75%/100% at 3/4/5 years) for stock issued after July 4, 2025.
- IRS Form 15620 — Section 83(b) Election (IRS.gov). Standardized form released November 2024. Revised version issued April 2025. Electronic filing via IRS portal launched July 2025. Paper filing (certified mail) remains a valid alternative.
Startup Founder Advisor Match is a referral service, not a law firm, broker-dealer, or registered investment adviser. We may receive compensation from professionals in our network. Content is for informational purposes only and does not constitute legal, tax, investment, securities, or individualized financial advice. Coordinate founder stock decisions with company counsel, personal counsel, CPA, board-approved processes, and other professional advisors.