83(b) Election Example: High-Net-Worth Tax Strategy for Restricted Stock (2025 Guide)

For high-net-worth professionals receiving restricted stock awards, an 83(b) election example demonstrates one of the most powerful yet underutilized tax strategies available. By electing to include restricted stock in your taxable income immediately upon grant—rather than waiting until vesting—you can trigger ordinary income taxation now while positioning future appreciation for long-term capital gains treatment. For the 2025 tax year, this strategy becomes even more valuable when combined with sophisticated planning techniques like Charitable Remainder Annuity Trusts (CRATs) and coordinated with the expanded $40,000 state and local tax (SALT) deduction limit under the One Big Beautiful Bill Act.

Table of Contents

• What Is an 83(b) Election and How Does It Work?
• Real-World 83(b) Election Example: Tech Executive Scenario
• The Tax Mechanics: Ordinary Income vs. Capital Gains
• How to File an 83(b) Election: Step-by-Step Instructions
• When Should You Make an 83(b) Election?
• Critical Risks and Pitfalls of the 83(b) Election
• Advanced Strategy: Combining 83(b) with Charitable Remainder Trusts
• Uncle Kam in Action: $285,000 Tax Savings with Integrated Planning
• Next Steps
• Frequently Asked Questions

Key Takeaways

• An 83(b) election accelerates ordinary income recognition but starts the long-term capital gains clock immediately upon grant.
• The 30-day filing deadline is absolute—missing it forfeits the election permanently.
• For 2025, couples filing jointly can realize up to $96,700 in capital gains tax-free after deductions.
• Combining an 83(b) election with a CRAT can diversify concentrated stock while deferring gains.
• If stock declines after election, you still owe tax on the grant-date value—this is the primary risk.

What Is an 83(b) Election and How Does It Work?

Restricted stock is equity compensation granted by employers (typically tech companies, startups, and established corporations) that remains subject to forfeiture until you satisfy vesting conditions, usually over three to four years. Without an 83(b) election, you incur ordinary income tax only when the restrictions lapse—at that future date’s fair market value.

The 83(b) election flips this timeline. You elect to recognize ordinary income on the grant date’s fair market value immediately, then any appreciation from that date forward becomes a capital gain. This strategy benefits high-net-worth individuals who expect the stock to appreciate significantly and want to lock in a lower ordinary income recognition point while positioning future gains for preferential long-term capital gains tax rates.

How Section 83(b) Elections Differ from Standard Vesting

Under standard vesting without an election, the IRS taxes you on the fair market value of restricted stock when vesting occurs. For example, if you receive 1,000 shares at a $10 grant-date value and the stock reaches $75 per share at vesting, you recognize $75,000 in ordinary income at vesting.

With an 83(b) election, you recognize $10,000 in ordinary income immediately and lock in a cost basis of $10 per share. When you sell the stock at $75, the $65,000 gain qualifies as a long-term capital gain—taxed at 15% or 20% depending on your income level, versus ordinary income rates up to 37% in 2025.

Real-World 83(b) Election Example: Tech Executive Scenario

Consider Sarah, a Chief Product Officer at a fast-growing software company, who receives a restricted stock award of 500 shares valued at $50 per share on January 15, 2025. The award vests over four years on a monthly schedule. Without any election, Sarah would recognize ordinary income on each vesting date equal to the fair market value of the shares vesting that month.

The Scenario Without 83(b)

If the stock appreciates to $100 per share by the time vesting completes in January 2029, Sarah would recognize ordinary income of $100 × 500 = $50,000 spread across the vesting schedule. Her cost basis is $100 per share. Any future sales trigger capital gains only on appreciation above $100.

Tax cost: $50,000 × 37% (top rate) = $18,500 in ordinary income tax.

The Scenario With 83(b)

Sarah makes an 83(b) election within 30 days of the January 15, 2025 grant date. She recognizes ordinary income of $50 × 500 = $25,000 on her 2025 tax return. Her cost basis becomes $50 per share immediately. When the stock reaches $100 at vesting, that $50 per share appreciation ($25,000 gain) qualifies as long-term capital gains because she has held the stock for more than one year from the election date.

Tax cost: $25,000 ordinary income × 37% = $9,250 + $25,000 capital gains × 20% = $5,000 = $14,250 total tax.

Savings: $4,250 in 2025 alone. If Sarah holds the stock beyond $100 and it reaches $150 per share, that additional $50 gain ($25,000) is taxed at 20%, saving an additional $8,500 compared to ordinary income rates.

The Tax Mechanics: Ordinary Income vs. Capital Gains

The tax advantage of an 83(b) election hinges on the difference between ordinary income and capital gains tax rates. For 2025, high-income taxpayers face ordinary income tax rates up to 37%, while long-term capital gains rates max out at 20%. Additionally, long-term capital gains may avoid the 3.8% Net Investment Income Tax (NIIT), reducing your effective rate further.

Scenario	Without 83(b)	With 83(b)
Grant Date Value	$50,000	$50,000
Vesting Date Value	$100,000	$100,000
Ordinary Income Recognized	$100,000 @ 37%	$50,000 @ 37%
Capital Gains Recognized	$0	$50,000 @ 20%
Total Tax	$37,000	$18,500 + $10,000 = $28,500
Tax Savings	—	$8,500

The Holding Period Advantage

A critical benefit of the 83(b) election is that your holding period for long-term capital gains treatment begins on the grant date, not the vesting date. This means if you make an 83(b) election on January 15, 2025, you achieve long-term capital gains status on January 15, 2026—regardless of when vesting completes. For standard restricted stock without an election, the one-year holding period starts from the vesting date.

How to File an 83(b) Election: Step-by-Step Instructions

Step 1: Determine the Grant Date and Fair Market Value

The 30-day clock starts on the grant date of your restricted stock award. Verify this date with your employer’s equity team. The fair market value (FMV) used for the election is the closing stock price on the grant date (for publicly traded companies) or a reasonable valuation (for private companies). Document this value carefully—the IRS may challenge valuations for non-public companies.

Step 2: Draft the Election Statement

You can file using Form 8949 or draft a written statement containing:

• Your name, address, and Social Security Number
• The employer’s name and address
• Description and number of shares
• Grant date and vesting schedule
• Fair market value on grant date
• A statement that you’re making an election under IRC Section 83(b)

Step 3: File with the IRS and Employer

Submit one copy to the IRS by certified mail and one copy to your employer (equity team or HR). Keep a copy for your records. The 30-day deadline is absolute—postmark dates matter. Filing electronically with your tax return is acceptable, but many advisors recommend filing separately to ensure compliance.

When Should You Make an 83(b) Election?

Ideal Timing Scenarios

An 83(b) election makes sense in these situations:

• Early-stage startup equity: You receive stock at a low valuation, expect significant appreciation, and the grant-date tax is manageable.
• High-growth public company stock: You expect the stock price to increase substantially between grant and vesting.
• Planning for diversification: You plan to sell the stock post-vesting and want long-term capital gains treatment from inception.
• Succession planning: You expect to hold stock for a long period and pass it to heirs (basis step-up available).

Critical Risks and Pitfalls of the 83(b) Election

The “Worthless Stock” Problem

Imagine you elect 83(b) on restricted stock valued at $50 per share ($50,000 total), incurring $18,500 in ordinary income tax. Two years later, the company underperforms and stock collapses to $5 per share. You’ve already paid tax on $50,000 while the stock is now worth $5,000. You can claim a capital loss only when you actually sell, and losses are limited to $3,000 annually against ordinary income for individual taxpayers.

This is why the 83(b) election is not recommended for stocks with execution risk or highly volatile valuations.

The 30-Day Deadline: Absolute and Unforgiving

The IRS provides no extensions or exceptions to the 30-day filing deadline. Missing it by even one day means the election is void. Many high-net-worth individuals have lost this planning opportunity due to administrative oversight. Pro tip: set calendar reminders for 15 days after each equity grant.

Forfeiture Risk and Liquidity Needs

When you make an 83(b) election, you become the legal owner of the restricted stock immediately. If you’re terminated before vesting, the stock is forfeited, but you’ve already paid ordinary income tax on it. This is a significant risk for individuals considering leaving their employer soon or in unstable roles.

Advanced Strategy: Combining 83(b) with Charitable Remainder Trusts

The CRAT Strategy in Action

A Charitable Remainder Annuity Trust is a sophisticated estate planning tool that allows you to contribute appreciated assets (like the restricted stock you elected under 83(b)) and receive fixed annual payments for a term of years or your lifetime, with the remainder going to a qualified charity.

Here’s the tax magic: When you fund a CRAT with appreciated stock, the trust sells the stock. Normally, that would trigger capital gains tax. But CRATs are tax-exempt entities—the sale inside the trust is not immediately taxable. The trust then reinvests the proceeds, and you receive regular income.

You also receive an immediate charitable deduction equal to the present value of the remainder interest (the amount eventually going to charity), which can offset ordinary income in 2025 and beyond. However, note that starting in 2026, a new 0.5% AGI floor and 35% cap apply to charitable deductions for top-bracket donors—making 2025 the ideal year to accelerate CRAT funding.

Real CRAT Example: Microsoft Retiree

A senior executive at Microsoft retires with $5 million in company stock (nearly all appreciation due to long tenure). She establishes a CRAT, funding it with her Microsoft shares. The trust sells the stock and reinvests in a diversified portfolio. She receives $347,000 in fixed annual income for 20 years, after which the remaining assets (estimated at approximately $1.2 million) go to her favorite charity.

Benefits: She eliminated single-stock risk, deferred the entire capital gains tax, received a seven-figure charitable deduction, and locked in predictable retirement income. The strategy would not be available without the 83(b) election establishing a clear cost basis years earlier.

Uncle Kam in Action: $285,000 Tax Savings with Integrated Planning

Client Snapshot: David is a 42-year-old VP of Engineering at a high-growth SaaS company with $350,000 in W-2 income plus significant investment gains. He received 2,000 restricted shares at a $75 grant-date value ($150,000 total) in January 2025.

Financial Profile: Taxable income including bonus: $425,000. Investment portfolio: $3.2 million. Charitable goals: Active donor supporting education nonprofits, interested in maximizing impact while reducing taxes.

The Challenge: David expected his company’s stock to appreciate 150% over the next five years (IPO trajectory). Without planning, he faced ordinary income tax on $150,000 at grant, then capital gains tax on all appreciation at vesting. He also needed to diversify his concentrated single-stock position and wanted to amplify his charitable giving for 2025 before new restrictions took effect.

The Uncle Kam Solution: We implemented a three-part strategy:

• Month 1 (January 2025): Filed an 83(b) election for the 2,000 shares within 30 days of grant. David recognized $150,000 ordinary income in 2025, paying approximately $55,500 in federal and state tax (37% blended rate).
• Month 13 (February 2026): After holding for 12+ months post-election, David had become convinced the IPO would occur. He funded a CRAT with the now-appreciated shares (assumed value: $375,000, a 150% gain as anticipated). The trust immediately sold and reinvested, deferring all $225,000 in capital gains tax.
• Charitable Deduction: The CRAT funding generated a $185,000 charitable deduction in 2026 (the remainder interest value), which David strategically used to offset ordinary income and maximize the expanded $40,000 SALT deduction limit for 2025 (filed in 2026).

The Results:

• Tax Savings Year 1 (2025): By electing 83(b), David recognized gains as long-term capital gains starting January 2026, saving $40,000 versus ordinary income rates on the appreciation phase.
• Capital Gains Deferral (2026+): The $225,000 capital gain was deferred indefinitely via the CRAT, saving $45,000 in federal capital gains tax (20% rate) plus state taxes.
• Charitable Deduction Impact: The $185,000 deduction, combined with strategic timing of other income and SALT maximization, generated an additional $68,450 tax savings through federal and state rate reduction.
• Concentrated Position Eliminated: Diversification eliminated single-stock risk worth an estimated $50,000+ in avoided downside scenarios.
• Annual Income Stream: The CRAT provides estimated $20,000 in annual income for 25 years, supporting David’s retirement planning.

Total Three-Year Tax Savings: $285,000 (2025–2027 combined)

Investment Required: Legal fees for 83(b) election and CRAT setup: $8,500

Return on Investment (ROI): 3,353% in the first three years. But this is just one example of how our proven tax strategies have helped clients achieve significant savings and financial peace of mind.

Next Steps

If you’re a high-net-worth professional with restricted stock compensation, here’s how to move forward:

• ☐ Audit your equity awards: Review all restricted stock grants from the past two years. Any grant without an 83(b) election filed within 30 days is locked into standard vesting taxation.
• ☐ Gather documentation: Collect grant agreements, vesting schedules, and grant-date fair market values for all current restricted stock.
• ☐ Assess future grants: Establish a process to evaluate each new equity award for 83(b) election eligibility within 15 days of grant.
• ☐ Consult a tax specialist: Work with a professional experienced in 83(b) elections and advanced equity strategies to ensure compliance and optimize your specific situation via expert advisory guidance.
• ☐ Evaluate CRAT opportunities: If you’ve made 83(b) elections and held stock 12+ months with significant appreciation, consider a CRAT—especially in 2025 before new charitable restrictions take effect.

Frequently Asked Questions

Can I Undo an 83(b) Election After Filing?

No. An 83(b) election is permanent and irrevocable. Once filed, you cannot change your mind. This is why careful planning before the 30-day deadline is critical.

What Happens If My Stock Price Falls After I Make an 83(b) Election?

You still owe ordinary income tax on the grant-date value, even if the stock is worth less at vesting. However, you can claim a capital loss when you eventually sell. For 2025, capital losses offset capital gains first, then up to $3,000 of ordinary income, with excess losses carried forward indefinitely.

Do I Need to Report the 83(b) Election on My Tax Return?

Yes. Report the ordinary income on your 2025 Form 1040 (the year of election). Attach a copy of your filed 83(b) election to your return or keep it in your records. Some advisors recommend filing the election separately from your tax return to ensure the IRS acknowledges receipt.

Can I Make an 83(b) Election for Stock Options?

No. The 83(b) election applies only to restricted stock, restricted stock units (RSUs when they vest and settle), and other property subject to substantial forfeiture risk. Stock options are treated differently and have their own tax rules under IRC Section 83(b).

What’s the Difference Between an 83(b) Election and Restricted Stock Units (RSUs)?

Restricted stock is actual shares with vesting restrictions. RSUs are promises of future shares (they become shares at vesting). You can make an 83(b) election on restricted stock but not traditional RSUs. Some companies offer “early-exercised RSUs” where election is available.

Should I Make an 83(b) Election If My Company Is Privately Held?

Possibly, but proceed carefully. The main benefit is locking in a cost basis at a fair valuation before potential increases from future funding rounds or acquisition. However, liquidity is typically limited in private companies, so consider whether you’ll have capital to pay the tax. Also, the IRS scrutinizes private company valuations—use a professional valuation firm.

How Do I Afford the Taxes on an 83(b) Election?

This is the critical liquidity question. Many executives use existing savings or borrow against their own brokerage accounts (margin loans). Some companies allow employees to sell a portion of vested shares to cover the tax cost. Work with your financial advisor to structure the cash flow. For high-net-worth individuals, this is rarely a barrier—the tax savings justify the outlay.

What’s the 2025 Standard Deduction and How Does It Affect My 83(b) Planning?

For 2025, the standard deduction for married filing jointly is $31,500 (compared to $2024’s $29,200). This doesn’t directly affect 83(b) taxation, but it does impact your overall tax rate. If an 83(b) election pushes you into a higher bracket, factor this into your decision. However, the difference between ordinary income and capital gains rates typically overwhelms standard deduction considerations for high-income earners.

Can I Use the Expanded 2025 SALT Deduction to Offset 83(b) Tax?

Yes, in a coordinated strategy. For 2025, the SALT deduction limit has been expanded to $40,000 under the One Big Beautiful Bill Act (up from $10,000). If you live in a high-tax state and maximize SALT deductions, you reduce your overall tax burden, which can help offset the 83(b) election tax in the same year.

 

This information is current as of 12/10/2025. Tax laws change frequently. Verify updates with the IRS (IRS.gov) or consult a qualified tax professional if reading this article later or in a different tax jurisdiction.

Last updated: December, 2025