You Just Got Equity Compensation. Congratulations — Now What?

You've worked relentlessly to reach this point. The corner office, the leadership title, the compensation package that finally reflects your value. And then, buried somewhere in a dense offering letter or board resolution, you see it: equity compensation — restricted stock, stock options, or maybe profits interests in the firm.

It should feel like a celebration. Instead, for many executives, it triggers a wave of quiet anxiety.

You're already managing a demanding career, a family that needs your presence, aging parents who need your attention, kids' schedules that don't pause for board meetings, and a financial life that's grown increasingly complex. Now someone is handing you a document with tax implications you don't fully understand and telling you that you may have only 30 days to make a decision that could cost — or save — you hundreds of thousands of dollars.

You're not alone in feeling that tension. Equity compensation is one of the most powerful wealth-building tools available to executives, but it arrives with a decision-making framework that is genuinely difficult, time-pressured, and unforgiving if you get it wrong. The stakes are high, the rules are technical, and the clock starts ticking the moment the grant is made.

This article is designed to cut through the noise. Let's talk about what an 83(b) election actually is, when it makes sense, when it doesn't, and how to think through the decision like the executive you are — even when life is pulling you in ten directions at once.

What Is an 83(b) Election?

Under Internal Revenue Code Section 83, when you receive property (like company stock) in connection with your employment or service, you generally don't owe tax on it until it vests — that is, until the restrictions on the stock lapse and you have full ownership rights.

At vesting, the fair market value of the stock at that time is treated as ordinary income. If the stock has appreciated significantly between the grant date and the vesting date, you could be facing a very large tax bill on income you haven't actually realized in cash.

An 83(b) election allows you to short-circuit that default rule. By filing the election within 30 days of receiving the stock, you choose to recognize the income — and pay the tax — based on the stock's value at the time of the grant, not at vesting.

In simple terms, you're telling the IRS: "I'd rather pay tax on this stock now, when it may be worth very little, than later, when it could be worth a fortune."

Why the 30-Day Window Matters — And Why It's So Stressful

The IRS requires that the 83(b) election be filed within 30 calendar days of the stock grant date. There are no extensions. There are no exceptions. Miss the deadline, and the election is gone forever for that particular grant.

For a busy executive juggling travel schedules, quarterly earnings, family obligations, and everything else on the calendar, 30 days can evaporate quickly. This is not a decision you can push to "next quarter." It demands immediate attention, even when the rest of your life doesn't slow down to accommodate it.

The Decision Matrix: When Does an 83(b) Election Make Sense?

There's no universal answer. The right decision depends on a handful of key variables that interact in ways unique to your situation. Here's how to think through them.

Factor 1: Current Value of the Stock

The 83(b) election is most powerful when the current fair market value of the stock is low — ideally close to zero or at a nominal value. This is common in early-stage companies, new ventures, or situations where you're receiving restricted stock at founding or near-founding stages.

If you receive stock worth $0.10 per share and file an 83(b) election, you pay ordinary income tax on $0.10 per share now. If that stock is worth $50 per share when it vests three years later, you've avoided paying ordinary income tax on the $49.90 of appreciation. Instead, that gain will be taxed at the more favorable long-term capital gains rate when you eventually sell — assuming you've held it long enough.

The lower the current value, the more compelling the election becomes.

Factor 2: Growth Expectations

An 83(b) election is essentially a bet that the stock will appreciate meaningfully between the grant date and the vesting date. If you believe the company has strong growth prospects and the stock price is likely to rise substantially, paying a small tax bill today to convert future gains from ordinary income to capital gains can be enormously valuable.

Conversely, if growth prospects are uncertain or modest, the calculus shifts. You may be paying tax today on stock that doesn't end up appreciating much — or at all.

Factor 3: Risk of Forfeiture

This is the factor that makes executives lose sleep. If you file an 83(b) election and pay tax on the stock today, but then leave the company (or are terminated) before the stock vests, you forfeit the unvested shares. The tax you paid? Gone. The IRS does not give refunds on forfeited 83(b) stock.

You need to honestly assess your likelihood of staying through the vesting period. Consider the vesting schedule, your career trajectory, the stability of the company, and the realities of executive turnover in your industry. If there's a meaningful chance you won't be around to see the stock vest, the 83(b) election carries real downside risk.

Factor 4: The Tax Spread

Calculate the actual dollars at stake. What would the tax bill be if you file the election today? What might the tax bill be at vesting if the stock appreciates as expected? The difference between those two numbers — and the difference between ordinary income tax rates and long-term capital gains rates — is the potential savings.

For high-income executives in top federal and state tax brackets, the spread between ordinary income rates (potentially 37% federal plus state) and long-term capital gains rates (20% federal plus the 3.8% net investment income tax) can be substantial. On a large equity grant with significant appreciation, that rate differential can translate into six- or even seven-figure tax savings.

Factor 5: Cash Flow and Liquidity

Filing an 83(b) election means writing a check to the IRS now — or more precisely, having the tax obligation triggered now. Even if the current value is low and the resulting tax is modest, you need to have the liquidity to cover it. For stock in a private company with no market to sell shares, this is entirely an out-of-pocket cost with no immediate way to monetize the asset.

Make sure the cash outlay fits within your broader financial plan without creating strain.

Putting the Matrix Together

Think of the decision as a spectrum:

Strong case FOR filing 83(b):

Stock is currently valued at or near zero
High confidence the company will grow significantly
You are highly likely to remain through the vesting period
The tax cost today is small and manageable
You're in a high tax bracket, making the rate differential meaningful

Strong case AGAINST filing 83(b):

Stock already has substantial fair market value at grant
Growth prospects are uncertain or modest
There's meaningful risk you may leave or be terminated before vesting
The upfront tax payment would strain your liquidity
The vesting period is very long, increasing uncertainty

The gray zone — where most real-world decisions live — involves some combination of moderate current value, reasonable growth expectations, and some career uncertainty. This is where working with a tax advisor who understands equity compensation becomes essential, not optional.

A Word About the Emotional Side

It's worth acknowledging that this decision sits at the intersection of career risk, tax complexity, family financial security, and the very human tendency to feel paralyzed when the stakes are high and the clock is ticking. If you find yourself staring at the paperwork at 11 p.m. after putting the kids to bed, wondering if you're making the right call — that's normal. Every executive who has faced this decision has felt that weight.

The best thing you can do is recognize that this is not a decision to make alone, it's not a decision to make in a rush, but it is a decision that must be made promptly. Assemble your advisors — your financial planner, your tax professional, and if appropriate, an attorney who understands executive compensation. Give them the facts, walk through the matrix, and make a deliberate decision you can stand behind.

Your equity compensation is designed to reward your contribution and align your interests with the company's success. The 83(b) election is simply one tool — an important one — for making sure the tax tail doesn't wag the wealth-building dog.

This article is for educational and informational purposes only and does not constitute tax, legal, or financial advice. Every individual's situation is unique. Please consult with qualified tax and legal professionals before making any decisions regarding 83(b) elections or equity compensation planning.