Startup founders who use Carta are going to find it much easier to file their 83(b) elections now. Many founders forget to submit this election to the IRS, and that can have serious tax implications!
An 83(b) election is a formal letter that you need to submit to the IRS to state you are buying your startup’s stock immediately, even if it hasn’t all vested yet. This sets the value of your stock at the fair market value on the date it’s granted, rather than the market value on the date that the stock vests, which locks in your lower tax basis.
Carta simplifies 83(b) filings
One of the issues with filing an 83(b) election is that the letter must be physically mailed to the IRS, and you can’t submit it online. However, Carta, one of the best capitalization table software platforms available for startups, now allows you to generate the 83(b) notification through the platform, and print the notification and a cover letter. You’ll also get a tracking number so you can follow the status of your election through the Carta portal, and make sure your notification reaches the IRS. Not every founder wants to exercise their options on all of their shares right away, since that can result in a tax bill, but Carta allows you to enter the number of shares you plan to exercise.
Founders still need to mail the 83(b) election
The form has to be mailed to the IRS, and it should be sent certified mail to make sure the IRS doesn’t lose it. If the form gets lost and your startup has a IPO in five years, you won’t have any proof that you’ve submitted your 83(b) election, and you could end up with a big tax bill or other headaches. And remember, an 83(b) election has tax consequences, both now and in the future. You need to determine the best course of action for your situation, preferably by consulting a tax professional. If you have questions about 83(b)s, startup taxes, 409A valuations, or startup accounting, please let us know