But does it actually make sense to use your IRA? 3. A bit more on taxes.
Two other small things on taxes.
We looked at gains in the last post, but we shouldn’t forget the flip-side of that – losses. Capital losses are “useful” in either case – a loss in an IRA will reduce the amount of income on which you pay taxes; a loss from a cash investment can be used to offset capital gains too. The extra benefit of Section 1244 (which lets you offset a capital loss on an early angel deal against ordinary income) provides an extra boost outside of IRAs.
Similarly, at the state level in South Carolina, if you invest through an IRA, you can’t get the benefit of the South Carolina angel investor tax credit. This is not a trivial loss – potentially 35% of the invested capital amount taken off your taxes in cash but lost in an IRA – when investing in South Carolina.