Back to basics: angel taxes wrap up

So to recap:

  • Angel investments aim to generate cap gains (which is better than ordinary income)

  • Frequently, those gains are totally exempt from capital gains under Section 1202 (which is better than pretty much every other asset you can invest in ).

  • If they’re not exempt, maybe they can be rolled-over under Section 1045 and eventually become exempt.

  • If things go badly, the capital gain loss might become an ordinary loss under Section 1244 (which is a silver lining!).

  • Don’t forget to factor in state angel tax credits in some cases, LLC passthrough losses in others.

After all that, you “net down” to an asset class where taxes have a much lower smaller impact on pre-tax investment returns than in many other assets.

Hopefully after these posts you’re now confused enough to (a) consult a professional tax advisor and (b) add a few early stage investments to your portfolio.

Any questions?