Startup and Equity Tax Planning: Stock Options, Section 83(b) and Founder Shares

Startup and equity tax planning is about the few decisions that cannot be repaired later: whether to file a Section 83(b) election within its 30-day window, when to exercise options, and which entity issues the shares. Our Aurora, Illinois firm advises founders and employees of U.S. startups, including people who also hold equity, residency or family ties in Canada or India. We handle the U.S. tax side and coordinate with your Canadian CPA or Indian CA; corporate and securities questions go to your startup attorney.

Who needs startup and equity tax planning?

• Founders forming a company in Illinois or Delaware who will receive restricted shares.
• Employees of startups who hold ISOs, nonstatutory options or restricted stock units.
• Founders from India or Canada working with a U.S. co-founder or investor.
• U.S. persons who hold shares in an Indian private limited company or a Canadian corporation.
• Anyone about to sell shares in a tender offer, acquisition or secondary sale.

Core U.S. rules at a glance

An 83(b) election, according to the instructions to IRS Form 15620, must be filed no later than 30 days after the date the property was transferred, and it cannot be revoked without IRS consent. For ISOs, the IRS says you generally include nothing in income at grant or exercise, you may owe AMT in the exercise year, and you should receive Form 3921 after exercising. For nonstatutory options with no readily determinable value, you include the stock's fair market value less what you paid at exercise. Capital gains on stock held more than a year are taxed at 0%, 15% or 20% (for 2025, 15% up to $533,400 of taxable income for a single filer), with a 3.8% net investment income tax for higher incomes.

Qualified small business stock is reported on Form 8949 with code Q when part of the gain is excludable. The exclusion percentage, holding period and size limits were changed by 2025 legislation for stock issued after certain dates, so we test eligibility from the company's facts and the share issue date. Read our guide to U.S. entity types and tax forms for the entity side.

How the engagement works

1. Consultation. We review your cap table position, grant documents, vesting and plans for liquidity.
2. Written engagement agreement. It sets the scope (planning memo, elections, returns) and fee basis and is signed before work begins.
3. Document checklist. You send the stock purchase or grant agreements, option plan, valuation reports and board consents.
4. Preparation. We model the tax result of each option: file an 83(b) or not, exercise now or later, sell or hold.
5. Review. You receive a written summary with key dates, including 30-day election windows and exercise deadlines.
6. Filing. We prepare the 83(b) package (with mailing proof), Form 6251 analysis and the return.
7. Follow-up. We refresh the plan when you raise a round, change jobs or move countries.

Documents to prepare

• Stock purchase agreement, vesting schedule and the date shares were transferred.
• Option grant notice, exercise notices and the company's latest valuation report.
• Forms W-2, 3921 and 1099-B, and brokerage confirmations of any sales.
• Cap table and any SAFE or convertible note agreements.
• Prior returns showing AMT credit carryforwards.
• For cross-border holders: foreign share certificates, local tax filings and bank records.

Cross-border angles

Canada and India can each tax the same equity event that the U.S. taxes, so the order of events matters. Time spent in each country between grant and vesting can also affect how each country taxes the benefit. S corporation status is unavailable when a shareholder is a nonresident alien, so cross-border teams often use a C corporation. See U.S.-India business structures and the guide to Indian companies entering the U.S..

Common situations and fixes

• Missed the 83(b) deadline. The 30-day period is firm. We review alternatives, such as valuation arguments and restructuring of future grants, and do not promise relief.
• Large ISO exercise. We project AMT before you exercise and explore splitting the exercise across years.
• Leaving the company. Post-termination exercise windows are short, so we model cash needs early.
• Moving countries with unvested equity. We map vesting dates against residency start and end dates in each country.
• Convertible notes and SAFEs. The tax treatment depends on the terms, and we flag issues for your attorney.

A worked example

Sameer, based in Naperville, and Julia, based in Toronto, form a Delaware corporation that issues each of them 4,000,000 founder shares at $0.0001 per share, $400 each, vesting over four years. Because the shares are worth what they paid, an 83(b) election at transfer costs nothing and removes ordinary income at each vesting date. They must file within 30 days. Later, Maya, an early employee, exercises 10,000 nonstatutory options at a $1.00 strike when shares are worth $4.00: the $30,000 spread is wage income with withholding. If those had been ISOs, the $30,000 would generally not be regular income but could be an AMT item, and a sale after the required holding periods would be taxed as capital gain.

How we can help

From our Aurora, Illinois office we work with founders and employees across Kane, DuPage, Will and Kendall counties. We handle the U.S. side and coordinate with your Canadian CPA or Indian CA. Pair this with business formation and registrations, business tax returns and planning and our broader cross-border tax services. Our full list of services is on the services page.

Frequently asked questions

General information only. It is not tax, legal, accounting or immigration advice for your situation, and rules change; confirm the current rules with the official source or a licensed professional in the relevant country.