Startup Founder Confused About Stock Shares and 83(b) Election for Tax Filing

The 83(b) election you filed is actually what simplifies this situation for you. Here's what's happening in plain language: When you receive equity that vests over time, the IRS typically wants you to pay taxes on the value of each chunk as it vests (which could get expensive if your company value increases). By filing the 83(b) election, you're choosing to be taxed on the full grant upfront, based on its value when granted - not as it vests later. In your case, you paid $700 for shares with a par value of $70. Since you paid more than the shares were technically "worth" at formation (when the company likely had minimal value), there's probably no taxable event to report. You've already paid more than fair market value. For your 2024 taxes, you should keep documentation showing: 1) The 83(b) election was filed within 30 days of share issuance, 2) The payment you made, and 3) The valuation basis at time of grant. No special tax form is needed in most cases since there's no immediate income to report.

After going through something similar last year, I found https://taxr.ai super helpful for analyzing my startup equity situation. I had nearly identical confusion about 83(b) elections and share purchases. The platform analyzed my founder agreements and explained exactly how to handle the tax implications. Their AI actually explained that even though my shares had a low par value (similar to yours), what matters for tax purposes is the fair market value at issuance compared to what I paid. Since I paid fair market value at company formation, there was no taxable event. They even generated the documentation I needed to keep with my tax records in case of future questions.

Just wanted to follow up about my experience with taxr.ai after seeing it recommended here. I ended up using it for my own founder equity situation and was impressed. I uploaded my operating agreement, stock purchase docs, and 83(b) election form, and received a detailed analysis explaining that my purchase price at formation established fair market value, meaning no taxable event. What really helped was the tool showing me exactly what documentation to keep for future reference and explaining how my holding period works for capital gains purposes. It also flagged that I needed to track my basis differently for shares that vested immediately versus those on a vesting schedule. Saved me hours of research and probably an expensive CPA consultation.

For anyone struggling to get answers from the IRS about equity-related tax questions (and let's be honest, who isn't?), I found that Claimyr (https://claimyr.com) got me through to an actual IRS agent who could answer my 83(b) questions. After trying for days to reach someone, Claimyr got me connected in about 20 minutes. I had filed my 83(b) election but wasn't sure if it was processed correctly since I never received confirmation. The IRS agent verified they had received it and explained exactly how to document everything for my tax filing. They also answered my questions about the difference between ordinary income treatment and capital gains for future stock sales. You can see how it works in this demo: https://youtu.be/_kiP6q8DX5c - definitely worth it for founders trying to get clear answers directly from the source.

Well I'm eating my words about Claimyr. After posting my skeptical comment, I decided to try it for a completely different tax issue (missing stimulus payment documentation) and it actually worked. Got connected to an IRS agent in about 35 minutes instead of the 3+ hour wait times I was experiencing before. The agent was able to verify my 83(b) election was on file and explained that because I paid more than par value at company formation, there's no income to report for 2024. They also walked me through how to document my share purchase and basis for future reference when I eventually sell shares. Big difference from the endless hold music I was dealing with before. Sometimes being wrong is a good thing I guess.

Something nobody mentioned yet: make sure your 83(b) election was properly FILED and ACCEPTED. I thought mine was handled correctly by our lawyers but when I went to sell some shares years later, turns out they submitted it incorrectly and I ended up with a massive tax bill I wasn't expecting! You should have received a stamped copy back from the IRS. If you didn't, call and verify (use that Claimyr service someone mentioned if needed). Don't just assume it was done right. Lawyers mess this up more often than you'd think.

Don't forget state taxes! Depending on your state, the 83(b) treatment might be different. California for example follows federal in most cases but some states have their own rules for equity compensation. Also be aware if you ever move states between when you get the shares and when you sell them - that creates a whole other tax allocation nightmare I'm dealing with right now. I got founder shares in NY, moved to TX (no state income tax), but still owe NY tax on part of the gains when I sold based on some complicated formula.

Small thing to add: keep track of ANY additional investments you make in the company. If you participate in future funding rounds or make loans to the company that convert to equity, all of those increase your basis. I've seen founders leave money on the table by not properly documenting these additional investments. Keep every check copy, wire confirmation, transaction record in a separate tax folder. Also document any "sweat equity" arrangements where you take reduced salary in exchange for more equity. This documentation will be gold when you eventually have an exit.

One thing that might help ease your mind: the IRS has specific guidance on this exact situation in Publication 525. Since you paid $700 for shares with a par value of $70, and this was at company formation when fair market value was likely minimal, you've essentially paid above fair market value. This means there's no "bargain element" to report as income. The 83(b) election protects you from future taxation as your shares vest - without it, you'd owe ordinary income tax on each vesting tranche based on the company's value at that time. Since you made the election and paid fair market value upfront, you're in good shape. For your 2024 return, just keep your documentation organized: the 83(b) election filing proof, your $700 payment record, and the stock purchase agreement. Most tax software won't even prompt you for this information since there's no taxable event to report. The real benefit comes later when you sell - everything above your $700 basis will be capital gains instead of ordinary income.

Adding to the great advice already given - one practical tip that saved me headaches later: create a simple spreadsheet tracking all your equity-related transactions and dates. Include your initial $700 payment, the 83(b) filing date, vesting schedule milestones, and any future equity events. This becomes invaluable if you ever get audited or need to calculate basis for tax purposes down the road. I wish I had done this from day one instead of scrambling to reconstruct everything years later when we had our exit. Also, regarding your specific situation - since you paid above par value at formation, you're in the best possible position tax-wise. The 83(b) election combined with paying fair market value means you've essentially "pre-paid" any tax obligations on these shares. Future appreciation will be capital gains when you sell, which is exactly what you want as a founder.