I've been doing a fair amount of research, trying to get opinions from different sources. As a startup co-founder, one of my goals has been to play my taxes legally and ethically, but also responsibly.
Playing the "tax game" is clearly something that can determine how much money we pay in early stages, when we get bought out, etc., therefore I believe it is valuable to consider if and when I should write this letter to the IRS (I am American).
I understand that the letter must be written in 30 days, and I understand what it is, essentially (the ability to pay taxes par value at present date, rather than the taxes of the shares when we sell out). For those who don't know, they are described here.
However, my best business adviser (has sold companies for personal gains upwards of $50m) recommended we stay away from the 83(b) election for the sake of making trades and seeing big drops in stock prices, and still having to pay the tax based on the old, higher share price.
After reading, it seems like it's always a good thing (but my adviser clearly advised against this). I think a good answer to this question would adequately list when a business would consciously make the decision not to enroll and why they chose not to enroll.
In short, and to make sure I don't get opinionated responses, can we limit this to factual relationships between scenarios where a business would and would not enroll in the 83(b) election.
First, get competent tax/legal advice. This is important to get right. Second, no issue is binary. My experience is that it is not how much you make; it is how much you keep. Your business today, if the usual start up, can be valued at nearly nothing. It is an idea, perhaps some code, and little execution. The best tax treatment is for these shares to be worth little now with significant accretion in time. Because this is your cost basis and for people that join soon, you want this number to be low because this will add (perhaps emotional) value to their offer to join. When/if you sell in the future, the gains will be taxed at capital gains rates, not ordinary income. When I sold my company, I had a portion in options that were taxed at 39.6% and a portion at 20%. The option value had to overcome 2x the tax burden to be as valuable to me. Without more information, I do not understand your adviser's comment " ... for the sake of making trades and seeing big drops in stock prices ..." because you cannot drop below zero. I may have missed something.
Does this business adviser have a law license or is he a certified public accountant? I ask because some of the information he has provided is misleading.