Is angel investing tax deductible?
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Hey, it's Scott Orn at Kruze Consulting. And today I'm answering the question, is angel investing tax deductible for the investor?
And when someone asked me this question recently, I was like, wow, wouldn't that be amazing? Sometimes it does feel like you're giving money to charity when you do angel investing, but angel investing is really the heart and soul of the startup ecosystem and the venture capital ecosystem. And it's really important. And the cool thing about angel investing is when you get into a good company early at a really low valuation, you can make crazy amounts of money, especially when the company goes IPO or gets bought for a big valuation. And guess what? That helps subsidize the companies that didn't make it.
And so the investment in a company is not tax deductible, but guess what? There's an added bonus. Say, the companies you invest in, one or two out of 10 are big hits and you're making money there, which is great. But the other ones don't quite work out, which is kind of like the ratio for angel investing. Well, the losses on the company, when it goes, unfortunately shuts down and goes bankrupt, that is tax deductible.
So you can take a capital gains loss on the investment when the company shuts down. Oftentimes your friendly CPA will ask you for proof the company shut down, or the Delaware franchise tax filing for basically withdrawing the Delaware franchise, Delaware corporation, whatever it is, just some type of proof that the company did go down and not make it. But all that money you put into the company that didn't make it can go to an offset on your gains for the companies that did make it. And so it's kind of like a really nice little thing about angel investing.
Yes, some don't make it despite the founder's best efforts, but that's a tax write off when it finally doesn't make it. So hope that helps. It's again, angel investing, super-important for the startup ecosystem. We love you angel investors and keep taking big swings and making the entrepreneurial economy possible.
And if you have any other questions on this, hit us up at kruzeconsulting.com, thanks.
