I have been spending a lot of time investing a large portion of my money for the long-term. I have been doing very well and now I would like to use my appreciated securities to start a business and continue investing, but now in the form of a proprietorship with a business name. I eventually hope to turn the business into an LLC, however right now, i will not have any liability, and want to build up performance and equity in my company name for future ventures. However, I have some further quesitons about starting this small business as a venture capitalist or angel investor. (Also, i am open to any suggestions about anything i have previously stated...)
1. As startup capital for my business (a sole proprietorship), would I be able to transfer my own current individual brokerage account into a small business borkerage account without cashing out my appreciated stocks?
2. At the time of start-up would I have to report any capital gains on my taxes if I performed this transfer? Or would the basis on my stocks just resume and continue from when i originally bought them? Then when i do cash them out I would just pay tax on capital gains under my business (which would really just pass-through to me...?) Is this correct?
3. Would I have to pay Self-Employment Tax on the Capital Gains and Dividends that my company makes due to holding/selling these securities as I continue to invest within my small business? Or is SE Tax only for a business that is primarily selling goods?
4. Laslty, as I do business, would I be able to transfer money (equity or income after taxes) out of my small business in order to use the money for personal needs, since I am the sole owner of the company? Are we treated as one?
Okay, well any feedback that I can receive would be greatly appreciated. I am new to starting a real business, but very excited to do it and do it right.
Without doing a complete review of your tax situation I would not want to advise someone on a public tax forum on something so specific.
I can tell you this. Capital Gains are going up next year. The most important factor going forward will be holding your assets more wisely to increase liquidity and shelter earnings from taxation.
I do have a series of Tax Tips Videos on my website that you may find helpful. Just click the link below my name.
Angels can be good but they can also be nightmares. They demand a pretty steep price for their money since they are getting in early when the venture is still high-risk. On the other hand, I have seen many cases where he rolodex of the angel made a material difference in the outcome of the venture. Try to find angels who are relevant to your industry; if you're starting a software company then don't take money from real estate guys or oil guys... try to find some high-tech angels instead.
MikeS
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VCfreedom,
A lot of good questions. Most of them relate to your transfer of secruities to the company, so that's the issues you need to settle before you go much further.
This issues are not in my area of expertise, and I agree with others about finding a good accountant.
Not positive on all of these issues, but I believe you may transfer these assets without tax consequence. Your transferred basis will be lesser of the personal adjusted basis or the fair market value at the date of the transfer.
Also, self-employment tax is never owed on interest, dividends, capital gains, rental income, royalties, S-corporation profits, limited partnership income, IRA distributions, pension distributions, or social security income.
Again, it sure wouldn't hurt to find a good CPA to verify these matters before you proceed.
Hope this helps.
Angel Investors are a great option, especially for people new to the business enironment. Quite aside from the financial aspect, the real value is often the knowledge that you can gain from working with these people.
You may want to talk with an accountant about your issues. As a sole proprietor, your assets and the business assets are considered one and the same, as are the liabilities of the business.
Have you considered getting started by joining an angel investors group? That would be one way to get started and learn from more experienced individuals. Your accountant, attorney or banker can arrange an introduction. By participating in a group, all your assets wouldn't be at risk if an investment isn't profitable. You would be sharing the risk with others. Groups also have stringent requirements for those to whom they lend, which would offer an additional advantage and protection.
Message Edited by BizResearcher on 01-06-2010 12:29 PM
Nicole, Thank you for your response. So i looked into the SBIC and it sounds this would be a good way to team up with the government to get a VC firm on its way, while also helping the economy, however, unfortunately i do not have the minimum starting capital required to do this yet.
Doing some more research i did find out that I may just want to start as a small Asset Management firm and then grow from there. The below article is very helpful
http://www.thestreet.com/story/10427548/how-to-become-a-full-time-invest...
Although, i still have the tax question of how do I treat startup capital in the form of stock?
I would love to be able to just tranfer into my business as is without claiming all the capital gains right now...
Do any tax professionals on here know the answer to this?
Message Edited by ChristineL on 01-05-2010 01:03 PM
Is there anyone who shed some light on VCfreedom's inquiries?
In the meantime, have you heard of the NASBIC (National Association of Small Business Investment Companies)? It is the trade organization for the Small Business Investment Company industry, and good be a good resource as you get on your feet.
Message Edited by NicoleD on 12-29-2009 02:18 PM
jbeidle | Contributor | 11/3/2010 - 8:26 am
scanlin | Window Shopper | 11/1/2010 - 5:17 am
legaljeff | Performer | 10/31/2010 - 8:23 pm
mrhelpful | Contributor | 6/22/2010 - 3:47 pm
BizResearcher | Window Shopper | 1/6/2010 - 12:27 pm
VCfreedom | Performer | 12/30/2009 - 3:59 pm
NicoleD | Former Moderator | 12/29/2009 - 2:18 pm
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