83b Election: is it important?


I'm reading through Do More Faster and there is a chapter in there that talks about an 83b election and how it is ESSENTIAL that you do it when you create your startup. It seems to save you a ton of taxes later on down the road.

Has anyone had any experience with it? Is it necessary that you do it? I been talking to many business lawyers and non of them seem to know anything about it off the top of their heads.

Also, does this election effect a startup that is 100% bootstrapped and is not planning to take outside money?

Getting Started Tax

asked Oct 9 '11 at 00:57
Edgar Miranda
230 points

2 Answers


It's critical if your shares vest over time. Otherwise, you'd owe new income tax each time a chunk of shares becomes vested, which happens monthly. And you'd have to compute a current fair market value each time, and pay tax on the paper profit. Crazy, right? That's why you need the 83b election.

answered Oct 9 '11 at 03:25
Alain Raynaud
10,927 points


Yes, the election has to do with the tax associated with the value of your shares, and that is relevant regardless of whether you are bootstrapped or funded.

answered Oct 9 '11 at 05:10
Henry The Hengineer
4,316 points

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Getting Started Tax