Starting a Business

What are the consequences of underestimating the fair market value of a pure startup in an 83(b) election?

min read
Opinions expressed by Entrepreneur contributors are their own.
The valuation of a business is never straightforward--particularly not with pure startups where there's no historical way (e.g., earnings or other ratios) to gauge the fair market value. What's particularly concerning are the tax consequences. The greater the discrepancy in value between the compensation income when the founders receive the shares and the value when the stock is sold will increase the long-term capital gain liability. However, by volunteering to pay tax on the value of the stock in the year it is received, the founders may be able to reduce their overall tax liability. Speak to a good accountant who understands 83(b) elections, business valuations, and the ramifications of the choices.

More from Entrepreneur

Grow Your Business at Entrepreneur LIVE! Join us on Nov. 16 in Brooklyn, NY, to learn from legends like Danica Patrick and Maria Sharapova, pitch our editors, meet with investors, and potentially walk away with funding!
Register here

One-on-one online sessions with our experts can help you start a business, grow your business, build your brand, fundraise and more.
Book Your Session

In as little as seven months, the Entrepreneur Authors program will turn your ideas and expertise into a professionally presented book.
Apply Now

Latest on Entrepreneur

My Queue

There are no Videos in your queue.

Click on the Add to next to any video to save to your queue.

There are no Articles in your queue.

Click on the Add to next to any article to save to your queue.

There are no Podcasts in your queue.

Click on the Add to next to any podcast episode to save to your queue.

You're not following any authors.

Click the Follow button on any author page to keep up with the latest content from your favorite authors.