What is a Section 83(b) election
What is a Section 83(b) election
Submitting a Section 83(b) election notifies the Internal Revenue Service (IRS) of your preference to have your founder stock taxed upon purchase rather than upon vesting.
Opting for a Section 83(b) election can result in substantial tax savings in the future. If you make a Section 83(b), you won't pay taxes when your stock vests. Instead, you opt to pay minimal (or potentially no) taxes at the time of stock acquisition, deferring tax obligations until you sell the stock.
Failing to submit a Section 83(b) election may lead to significant tax liabilities each time your stock vests, particularly if the stock's value appreciates. You will have to pay taxes when you sell the stock.
Please note that the Section 83(b) election is file by the individual taxpayer, not by the company. Each founder should consider whether they will be making the filing for themselves.
When to do a Section 83(b) election
When to do a Section 83(b) election
Startup founders often find it beneficial to file a Section 83(b) election when purchasing their stock during the company's early stages.
If you've recently established your startup, considering a Section 83(b) election for your founder's stock is prudent, particularly if you anticipate future value appreciation and plan to stay employed with your company until all your stock vests.
Mail your election by no later than 30 calendar days after the stock is issued to you. There are no exceptions to this rule—this is a strict deadline.
How to file a Section 83(b)
How to file a Section 83(b)
Fill in and sign the Section 83(b) election from provided to you. I
If you incorporated with Clara, this can be found in your Board of Directors Initial Action in your data room.
Mail the original signed form to the IRS within 30 calendar days of your stock purchase date.
We recommend sending it via one of the private delivery services authorised by the IRS.
Keep one copy of the form and mailing receipt with the company's records, and another copy for your own records.
Non-US Residents
Non-US Residents
If you reside outside the US but are required to file US tax returns, it's advisable to consider submitting a Section 83(b) election, as it could potentially reduce your future US tax burden.
Even if you currently don't file US tax returns but anticipate becoming a US taxpayer in the future, it's prudent to make a Section 83(b) election and apply for an Individual Taxpayer Identification Number (ITIN). Failure to make this election could result in increased US tax liabilities once your stock vests and you become subject to US taxation.
To fulfill the requirements for an 83(b) election, you need a US taxpayer identification number, which can be either a Social Security Number ("SSN") or a US Individual Taxpayer Identification Number ("ITIN"). If you don't possess an SSN, you can apply for an ITIN. ITINs serve a similar purpose to SSNs but are specifically designated for individuals ineligible for an SSN, such as non-US residents.
If you do not have an ITIN when submitting the 83(b) election, you can indicate in the election that you're currently in the process of acquiring one and proceed to apply for an ITIN.
Please seek tax advise on when and how to obtain an ITIN.