83(b) election

You’d then pay taxes at early exercise time. Paying taxes (and exercise cost) on something you can’t use or sell (and might end up being worthless) is a risk. But if startup succeeds, you just pay capital gains on appreciation. Also if you quit before liquidity there is no short deadline to exercise with a massive tax bill (that you can’t sell a part of your shares to pay).

83b is you purchase your company’s stock options at the strike price early, presumably before IPO, or best when the option price has not gone up so you do not need to pat any tax on the option price differences. You hope when your company goes IPO, you just pay long term capital tax, instead of regular income tax. After exercise, you then file 83b form with IRS.

other important notes: you have 30 days from the day you exercise the options. if a year has passed since the grant and you did the 83b election the tax rate is long term cap gains which is nice. you can also look into qsbs tax treatment. usually the process is you receive your options, early exercise said options, file the 83b election, then hope they attain value.

An 83(b) election is a choice you make regarding the tax treatment of unvested equity granted to you. It applies either to a stock grant or to an options grant that allows early exercise (which is the case people seem to be discussing below.) It does not apply to RSUs. 83(b) is not a form; rather it is a part of the tax code under which you are permitted to choose how your stock is taxed. If you send appropriate notice to the IRS within _30 days_ of a stock grant being made, you can choose to be taxed immediately on grant, rather than on vesting. In the case of options with early exercise, you can choose to be taxed at the moment of exercise, rather than at the later moment of vesting of exercised shares. In either case, this is effectively a bet that you will pay a lot less in taxes by paying now (when the stock is worth less) versus later. However, you do not get the taxes back if you quit or are fired and lose the shares before they vest, nor if the value of the shares goes down. For startup founders an 83(b) election is normally a no-brainer, because their shares are effectively worth nothing at grant, so choosing to pay taxes immediately has minimal cost and can save huge amounts down the road. For employees with early-exercised options, the costs are larger and the risk is real (but the amounts saved in taxes can also be large.) Just make sure you file the election with the IRS within 30 days of the grant/exercise date. After that it's invalid and there's no way to do it retroactively. If you're not sure of the exact letter to send, you could Google it, but I recommend consulting a CPA asap. Don't screw it up.