The Modern 83(b) Decision: Should Early Employees Still File in Today’s Startup Landscape?
For years, filing an 83(b) election was treated as a rite of passage for early startup employees. The logic was simple. Low valuation. Big upside. File early and save on taxes later.
But the startup ecosystem has changed.
Companies are staying private longer. Equity compensation is more complex. Remote hiring has expanded access to equity while reducing visibility into long-term outcomes. And the financial risk being passed onto employees is higher than most people realize.
Today, the better question is not “Should I file an 83(b) election?”
It is “Does filing an 83(b) election still make sense for my situation?”
Let’s walk through how this decision has evolved, what to consider before filing, and how to evaluate the 83(b) election in the context of a broader financial plan.
A Quick Refresher on the 83(b) Election
An 83(b) election allows you to pay taxes on restricted stock at the time it is granted instead of when it vests.
The intended benefits:
Lock in a lower taxable value
Start the capital gains clock earlier
Potentially reduce long-term taxes
The risk:
You pay taxes before liquidity
You may never realize value from the equity
There are no refunds if the company fails or you leave early
If you want a deeper explanation of how the election works and when it applies, this guide walks through the mechanics in detail:
The 83(b) Election Explained: How It Can Affect Your Equity Compensation Tax Strategy.
What Has Changed in the Startup World
1. Liquidity Takes Longer Than It Used ToA decade ago, many startups reached liquidity in five to seven years. Today, ten to twelve years is common.
That shift matters because:
Your capital is tied up longer
Your tax bet takes longer to pay off
Career changes often happen before liquidity
An 83(b) election assumes patience, stability, and confidence in the company’s trajectory. Those assumptions are no longer guaranteed.
2. Equity Is Granted Earlier, But With Less CertaintyStartups now use equity as a primary compensation tool even in early hiring stages. That often means:
Less financial transparency
Less certainty around valuation
Less clarity on long-term strategy
Many employees are making tax elections without fully understanding what they own or how likely it is to convert into real wealth.
If you are still building your foundation around equity compensation, this broader overview is worth reviewing:
Navigating the Complex World of Equity Compensation: Key Terms and Concepts You Need to Know.
3. Remote Work Changed the Risk EquationRemote hiring expanded opportunity, but it also increased risk exposure.
People now:
Join startups earlier than ever
Change roles more frequently
Have less visibility into leadership decisions
Often leave before full vesting
Filing an 83(b) only makes sense if you expect to stay long enough for the math to work in your favor.
When Filing an 83(b) Election Still Makes Sense
Despite the risks, there are still situations where an 83(b) election can be a smart move.
It tends to make sense when:
The strike price is extremely low. Early-stage grants with minimal valuation reduce downside risk.
You have strong conviction in the company. Not optimism, but informed confidence based on leadership, funding, and traction.
You plan to stay long term. The longer your expected tenure, the more valuable early taxation becomes.
You can afford the tax bill comfortably. The election should never strain cash flow or emergency savings.
You understand how this fits into your overall financial plan. Equity decisions should not exist in isolation.
If you are weighing timing and exercise decisions, this guide provides useful context:
Timing Is Everything: Strategies for Exercising Your Stock Options to Maximize Value.
When an 83(b) Election Often Backfires
This is where many people get burned.
An 83(b) election is usually a poor choice if:
The company’s future is uncertain
The valuation is already high
You are unsure how long you will stay
You do not have liquidity to cover taxes
Your net worth is already concentrated in company stock
One of the most common mistakes is treating the 83(b) as a default decision instead of a strategic one.
That approach ignores risk, opportunity cost, and the reality that most startups do not exit on a perfect timeline.
The Risk Most People Overlook: Opportunity Cost
The real cost of an 83(b) election is not just the tax payment. It is what that money could have done elsewhere.
That capital could have been:
Invested in diversified assets
Reserved for future tax obligations
Used to reduce concentration risk
Deployed toward more liquid opportunities
This becomes especially important when a large portion of your net worth is already tied to your employer.
If this resonates, you may find value in this broader discussion:
Smart Strategies for Diversifying Away from Company Stock and Reducing Risk.
How the 83(b) Fits Into a Bigger Financial Picture
An 83(b) election should never be evaluated on its own.
It intersects with:
Tax planning
Cash flow management
Career trajectory
Risk tolerance
Long-term wealth strategy
This is why equity compensation decisions work best when integrated into a comprehensive financial plan rather than handled in isolation.
For a more holistic view, this article provides a strong framework:
Building a Financial Plan Around Your Equity Compensation: Strategies for Success.
A Smarter Way to Frame the Decision
Instead of asking whether you should file an 83(b), ask:
What is my realistic upside?
What is my worst-case downside?
How long will my money be locked up?
How concentrated is my financial life already?
Does this decision align with my long-term goals?
When those answers are clear, the right decision usually is too.
A Closing Thought
The 83(b) election is not outdated. But it is no longer automatic.
In today’s startup environment, it requires more thought, more planning, and more context than ever before. The people who benefit most from filing are not the ones chasing tax savings. They are the ones making intentional, well-informed decisions that align with their broader financial picture.
At Silicon Beach Financial, we work with founders, early employees, and tech professionals to help them understand how equity fits into their overall wealth strategy, not just how it looks on paper.
If you are navigating an equity decision and want a second set of eyes on the tax, risk, and long-term implications, we are always happy to help you think it through.
Schedule a discovery call or sign up for our newsletter if you want thoughtful insights on equity, taxes, and building long-term wealth with intention.
