MemberJune 24, 2020 at 1:24 am
Excellent article on the tax benefit of investing startups.
1) Does the following crowdfunding on Seedinvet fall under 1202?
2) If yes, what all documents should I save to claim 1202 tax benefits in the future (assuming there will a successful exit)?
AdministratorJune 24, 2020 at 9:06 am
The questions I would be asking are:
- Is it an equity investment in a C-Corporation? It appears yes – Preferred Equity in NowRx, Inc. (incorporated in Delaware as YouRx, Inc in 2015 per the offering circular)
- Are you the original purchaser (not purchased via secondary sales)? Yes
- Did you acquire the stock in exchange for cash or property or as payment for a service?
- Has the company always had gross assets of $50 million or less?
- Are they a qualified business type (basically are they not a hotel, restaurant, financial institution, real estate company, farm, mining company, or business relating to law, engineering, or architecture)?
- Do they meet the active business requirement (at least 80% of the assets are used to run the firm, not for investment purposes)?
- Was the stock acquired after September 27, 2010 for 100% QSBS?
Personally, I would keep any of their financials, their offering circular, a copy of their campaign page, pitch deck(s), and anything else I can find at the time of investment as backup.
Take a look at their assets and financials to see if they meet the 80% test for question 6 as well as the $50M test for question 4.
Obtaining the answer to question 4 might be a little tricky as it requires confirmation and going through all their past year’s financials (if you can find them); however, given that it looks like their total assets as of December 2018 was only $5.7M, it’s likely that they’ve never exceeded $50M in gross assets in the past, which would disqualify them as Qualified “Small” Business Stock.
Upon a quick look it would appear they meet most of the checks, but please be sure to check yourself!
Hope this helps!
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