What is the purpose of a Section 83(b) Election?

A Section 83(b) Election allows an individual to elect to recognize income and pay taxes on restricted property before it becomes fully vested. The primary purpose of this election is to pay tax on the fair market value of the property at the time of transfer, even though the asset may still be subject to a risk of forfeiture. This is particularly advantageous if the value of the asset is expected to increase, as it locks in the tax liability at the lower current value rather than at a potentially higher value in the future when the property vests.

By choosing to pay taxes upfront, the individual benefits from starting the holding period for long-term capital gains, which may result in lower tax rates if the asset is held for the required duration before selling. This strategy can be beneficial in many situations where the asset is expected to appreciate or when the individual believes they are in a lower tax bracket now than they will be in the future.

The other options don't accurately describe the primary function of a Section 83(b) Election. For example, the election does not eliminate taxes on stock options; rather, it pertains to property with a risk of forfeiture. Additionally, it does not defer all taxes but rather accelerates the timing of income recognition for tax purposes.