IRAs: What can I do to optimize?

So what can I do to optimize?

There is, of course, nothing stopping you angel investing from both cash and IRA. You can, and many VentureSouth members in fact do, carefully plot what investments are made from which source.

If you’re investing in a C-Corp raising a priced equity round, the base positive outcome would be no ordinary income, a Section 1202 exemption, and a SC angel investor tax credit; and the base negative outcome a Section 1244 loss – all excellent treatments.

If the company is a South-Carolina headquartered, maybe cash investment is better to get the credit?

If you’re investing in an LLC that is going to pass along passive income losses. Might be more useful outside the IRA?

Maybe the IRA advantages are even greater if the company is outside South Carolina is raising a convertible note or revenue-based financing and so there is a higher chance of taxable income and no angel credit.

Maybe investments in very early deals (the first $1M into companies) are better in cash for the Section 1244 benefits, but later rounds (after $1M) in the IRA?

Obviously, angel investing is unpredictable, so what actually happens on a given company might (will!) be quite different from prediction. But small things can tilt returns in your favor, and our most sophisticated investors at least consider these nuances.

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