Introduction
Filing an 83(b) election in 2025 can save you thousands in long-term capital gains but if you’re a California resident, it comes with a twist: you must consider both Personal Income Tax (PIT) and the Franchise Tax Board’s rules.
This blog unpacks the intersection of IRC §83(b) with California PIT reporting, state-sourced equity income, and how to avoid audit triggers.
IRS and California Tax Code References
- IRC §83(b) – Inclusion of income upon election for unvested property
- FTB Pub. 1004 – Taxation of Nonresident Stock Options
- R&TC §17041 & §17952 – PIT on intangible property and residency sourcing
What Is an 83(b) Election?
An 83(b) election allows you to pay tax on the fair market value of unvested stock when it’s granted rather than when it vests.
Benefits:
- Converts future appreciation into long-term capital gains
- Useful if FMV at grant is low (e.g., pre-seed)
But in California:
- You report the ordinary income on your CA return too
- Even if you later move out, California can source income under PIT rules
Example: CA Resident Startup Founder
Example: Sara, a founder based in San Diego, receives 100,000 restricted shares at $0.01 FMV.
- She files an 83(b) with the IRS in 30 days
- Includes $1,000 income on both her federal and CA PIT return
- Moves to Nevada before the shares vest and exits 2 years later for $2M
Result: California still claims sourcing jurisdiction on the capital gain portion due to initial residency and equity origin.
Step-by-Step: Making 83(b) Work in California (2025)
- File IRS Form 83(b) Within 30 Days
Send via certified mail or IRS-approved e-filing vendor. - Include Ordinary Income in California PIT
Report the FMV at grant on your state return in the grant year. - Retain Evidence of Residency and Work Dates
These will be key in apportionment if you move out later. - Disclose on State Returns If Audited
Keep a copy of your 83(b) for FTB review especially during audits of RSUs or exit gains. - Exit Planning: Consider Trusts or Entity Transfers
Structure ownership to reduce CA-sourced income later on.
Conclusion
The 83(b) election can be a powerful tool but California residency and PIT rules create traps even after you leave the state.
Report the ordinary income correctly, document your timeline, and plan ahead if you expect a major liquidity event.
Call to Action
Planning an 83(b) election while living in California?
Book a compliance consultation with Anshul Goyal, CPA, EA, FCA
Anshul helps:
- File 83(b) elections properly
- Determine CA-sourced income vs. federal
- Avoid double tax and FTB surprises on startup exits
Protect your upside minimize your exposure:
https://calendly.com/anshulcpa/
Anshul Goyal, CPA, EA, FCA
Anshul brings 15+ years of U.S. and international tax experience. He specializes in helping online sellers, foreign founders, and U.S. residents with IRS and multi-state compliance. Known for his deep knowledge in Shopify and Amazon seller tax strategy, Anshul has helped hundreds of entrepreneurs minimize taxes and scale legally.
Disclaimer
This blog is for informational purposes only and does not constitute legal or tax advice. Please consult a qualified tax professional regarding your individual tax situation.
Top 5 High-Searched FAQs for 2025
1. Is 83(b) income taxable in California?
Yes. It’s reported as ordinary income in the year of grant.
2. Do I need to send a copy of the 83(b) to California FTB?
No, but retain it for audits. CA uses PIT returns to trace.
3. Can I avoid CA tax if I move out before vesting?
Not entirely CA may claim sourced income rights under R&TC §17952.
4. What happens if I forget to file 83(b)?
You pay ordinary income tax upon vesting at then-higher FMV.
5. Does 83(b) affect QSBS eligibility?
Yes. Early filing may help establish QSBS holding period if structured right.