Will not qualify for any preferential tax treatment under Qualified Small Business Stock (QSBS) or Small Business Corporation (SBC) exemptions: Section 1202 (QSBS tax-exempt gains), Section 1045 (QSBS deferred gains), or Section 1244 (SBC losses).Pass-through taxation may require you to file state income tax returns in multiple states, or require non-US citizens to owe US taxes.Pass-through taxation may trigger unexpected taxes for investors during the year.shares, not if you invested through a pre-money SAFE, Convertible Note, etc. Limited Liability Company (LLC) – taxed as a partnership (i.e. The tax consequences of investing in an LLC (taxed as partnership) or C Corporation will not be presented as pros or cons what may be a “pro” for one investor can easily be a “con” for another investor in the exact same business due to differences in personal tax situations.Īt a high level, here are some key differences in how investing in the two different business entities can impact your personal taxes. Summary of Tax Differences – Investing in LLCs vs. The intent is also to inform investors about some of the relevant sections of the tax code that are potentially applicable to equity crowdfunding, so that they can ask more educated questions of their tax advisor or CPA when it comes time to file personal taxes.įurthermore, tax codes are constantly changing, especially around the development of Reg CF, Reg A+, and equity crowdfunding, so always refer to the IRS website and your professional tax advisor for the latest rules and regulations, as well as your local state’s regulations. It presents some of the considerations and trade-offs so that investors can understand the potential tax consequences before making their first investment.
This article is not tax or investment advice. Thus, it’s crucial to understand how the type of business – whether an LLC (taxed as a partnership) or C Corporation – can impact your taxes before you invest. But when April 15 comes around, that investor could be in for a rude awakening if they didn’t consider the tax implications of those investment decisions.Įven investing as little as $10 in a Reg CF startup could trigger you to receive unexpected tax forms, like a Schedule K-1. It may be easy for an investor in equity crowdfunding to invest $10 across dozens of startups with no immediate tax consequences. Today we will discuss some of the key tax differences of investing in a Limited Liability Company (LLC) versus a C Corporation. While the ability for non-accredited retail investors to invest in private markets may be new, the tax laws around private market investing are not. With so many new things to learn when investing in the private markets, it is easy to overlook one important topic that may only come up once a year – taxes.
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