what is profits interest 
profits interest refers to an equity right based on the future value of a partnership awarded to an individual for their service to the partnership the award consists of receiving a percentage of profits from a partnership without having to contribute capital in effect it is a form of equity compensation and is used as a means of incentivizing employees when monetary compensation may be difficult due to limited funds such as with a start up limited liability company llc usually this type of worker compensation requires an 83 b election the bottom linean 83 b election allows someone to pay taxes on their stock awards at the time that they are granted rather than at the time of vesting this tax law is of particular benefit to startup employees who may receive a large part of their compensation in the form of restricted stock or stock options since startups hope that their share value will increase rapidly an 83 b election allows these employees to reduce their tax burden in the long term correction june 14 2023 an older version of this article incorrectly stated that someone making an 83 b election would be taxed according to the cost of exercising their shares in fact the tax is based on the difference between the fair market value of the shares and the exercise price 