In the last five years I have helped almost 150 founders through the incorporation process. Time and time again I keep seeing one step of that process, create mass confusion for founders and early employees. Filing the 83(b) Election with the IRS within 30 days of receiving a stock grant or stock options.
I will keep it short on why you might want to file a 83(b) Election with the IRS and focus more on how to file it, since that is likely why you are reading this. This article from Cooley Law does a pretty good job explaining in much greater detail why making an 83(b) Election with the IRS can be beneficial, as well as this explanation from Wealthfront.
In short, an 83(b) election means you will be taxed on the value of your stock at the time of the grant, rather than as it vests. For founders & early employee’s of new company’s, whose stock is usually priced at $0.0001 per share at incorporation, it can make a lot of logical sense to pay upfront tax while the price of the company is still very low. Now on to the how to file your 83(b) election instructions.
IMPORTANT 83(b) Election Deadline: You must file your 83(b) Election with the IRS within 30 days of receiving your stock grant or stock options! The filing is officially deemed to have been made on the date the 83(b) is mailed from the post office; i.e. the postmark date.
If your stock is not subject to vesting, then you can ignore this process and move on with your day. 83(b) Elections are not required for those without a vesting schedule.
Steps To File Your 83(b) Election
Start with gathering the required 83(b) form documents:
If your lawyer has provided you with 83(b) election forms you may use those. If not, then print four copies of page 9 from the 83(b) Election IRS form here.
You also need to include a cover letter to the IRS, a template of which can be found here: IRS Cover Letter Template.
Complete and review all four copies of the 83(b) election form, review, date, manually sign and insert the taxpayer identification number for the taxpayer (and spouse, if applicable).
Look up where to send the completed forms by finding your state on the "Where to File Paper Tax Returns With or Without a Payment” page of the IRS website.
Enclose the following in an envelope to be mailed:
Two copies of your completed 83(b) election.
Completed cover letter.
A return self addressed envelope with stamps. The IRS will keep the first copy of your election and stamp the second copy. The self addressed envelope will be used to mail you back the second stamped copy of you election for you to keep on file in your records.
Mail the enclosed envelope with 2 completed copies of your 83(b) election & cover letter to the IRS via USPS certified mail and request a return receipt.
Send another completed 83(b) election to your company.
Keep another completed 83(b) election for your personal records.
Thats it! Be on the lookout in the mail to receive that second stamped copy back from the IRS. And as always, be sure to keep your records someplace safe like a fireproof lock box.
Disclaimer: I offer this post only as helpful guidance as I am not a lawyer or certified accountant. You should still research on your own and consult your accountant if you are uncertain of the process for paying a Delaware C-Corporation Annual Tax.