The angel taxes posts in this series so far have covered when angel investing goes well. What about when things go wrong?
In general, if you lose money on an investment, you can offset that “capital loss” against a capital gain you have from something else.
For example, you make two $5,000 investments through VentureSouth, double your money on one, lose everything on the other. Your gain is $5,000 on the winner ($10,000-$5,000), and your loss of $5,000 on the loser. You pay taxes on the net gain – so no capital gains are due because the net result was getting your money back.
That’s good news (relatively speaking), but again true of any investments that generate capital gains and losses, not just angel investments in early stage companies. Does angel investing have any extra benefits here? Of course it does: come back tomorrow to learn more…