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How is VC Money Taxed?

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(Credit: How is VC Money Taxed?) How is VC Money Taxed?
February 16
2:30 PM 2020

Some say, one can never fully understand their potential until they venture out of their comfort zones and test other waters.  

This is exactly how venture capital funding works. Any growing business or startup may at some point need a boost to grow further even if it is already making profits. You do this for your business to realize its full potential or when competition becomes a factor in your line of business and you need to stay ahead. 

Venture capital funding is basically a group of investors or a single investor who decides to invest in a startup that they feel has the possibility to become something big. They do this through the aid of investment firms and they get to enjoy the returns on their investments when the startup grows. 

Philip Stein and Associate in one of the most sought after insurance firms that is also known for helping investors with their taxes. The firm that was started in 1979, has over 40years worth of experience in accounting, where it has especially, specialized in U.S tax services. Some of its notable services include:

  • Tax implications for hedge funds and venture capitalists

  • Providing exit strategies for hedge funds and venture capitalists

  • Act as intermediaries between owners and investors

  • Catch up filing

  • Child tax credits

  • Filing and FBAR or FATCA

  • Tax refunds

Taxation for Venture Capitalists

In order to encourage more investors on startup, the US government put limitations on how much they can tax investors. Investors always provide job opportunities for people and it would be a blow to the economy if they were to withdraw their contributions to startups.

According to revenue procedure 93-27 of the IRS, an investor receiving profits from an entity in exchange for services that were provided for the benefit of the entity or in hopes of being a partner, will not be taxed. This rules however, does not apply to the following situations:

  • The partner disposed of the profits within a period of two years

  • The partnership is limited or publicly traded

  • There is a stream of income gained from assets attained from the partnership

Exit Strategies from Venture Capital Funding

Once your startup has picked, beaten any competition around and is finally on cruise control, an exit strategy is always a good decision for any owner. 

As much as investor/VC funding is important for helping grow your business, it also comes at the cost of not being able to fully control your business. This means that any decision or changes that you feel need to be made need to be accepted by the partners depending on what percentage of the business they own through their investment. 

An exit strategy is also good for the investors in case there is a chance the business collapses in future. 

Some of the known exit strategies include buyback options for the initial owner, acquisitions and mergers, and getting an IPO. A VC can also sell his share to another potential investor. 

By visiting pstein.com, you will have the opportunity to get all the information you need on dealing with Venture Capital Funding. Philip Stein and Associates are guaranteed to provide you with the best services available for an investor or business owner. 

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