83(b) Election

You're the hired gun brought in by desperate private equity investors to save a dying company. You make a modest cash salary but are granted 2% ownership in the company by virtue of a giant stock grant, paid to you in the form of what are called RSUs, or Restricted Stock Units. At the time you joined the company, it was valued at $1 billion, so your 2% equity ownership is worth $20 million, notionally. Normally, you'd be required to pay tax on that grant the day it was given to you, so...you'd be given $20 million in unsellable-for-now stock and owe some $6-7 million in taxes payable in cash to the IRS, thankyouverymuch. But, in fact, your shares were granted to you with a string attached. You only own them, or "vest into them," at the rate of 1/4 per year.

So why should you owe taxes on all $20 million worth when you only get $5 million worth of notional stock value each year? Right. You don't. So you deploy your 83b election (yeah, it took us a while to get there), and you pay taxes on only the portion into which you have vested. Essentially, you get to dine free for a year, as far as taxes on that big stock grant go. If the company is really going to go bankrupt, after 363 days you can hand the keys and your CEO cowgirl keys back to the private equity company that bought the whoopee cushion maker in the first case, and after making the whoopee noise, say, "I tried. Sorry."