Depending on your individual circumstances, an 83(b) election may provide substantial tax advantages if you have been granted restricted stock contingent on specific vesting criteria. Founders and other investors favor restricted stock with vesting criteria because it provides an incentive for individuals to stay with a company and make it successful.
Under tax law, unvested restricted shares are treated as having a substantial risk of forfeiture. As a result of this possibility, the IRS does not immediately tax the employee upon the initial issuance of the restricted shares and the employee is not required to pay tax until the restricted shares actually vest. Without an 83(b) election, a holder of restricted stock pays tax on the fair market value of stock when it vests. Although the delay in paying taxes may seem like a desirable situation, it can actually cost an employee more money down the road.
