© 2019 VERHAGEN BENNETT LLP

Los Angeles, CA

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83(b) Election

An 83(b) election is a tax election made by a person who is issued stock in return for services rendered (e.g. you issue our firm equity in your company in return for our legal services), and that stock is subject to a vesting schedule. The 83(b) election neutralizes a potential disastrous tax consequence, and the founder recognizes “income” upon the initial restricted stock purchase.

If a founder fails to make a 83(b) election, each vesting milestone will be a taxable event for the founder. “Income” will be calculated as the difference between the FMV of the portion of stock that vested and the original purchase price of the newly-vested portion.