When investing in Startups is it better to invest as an individual or as an LLC?

Forum|Forum|3 years ago
November 21, 2022
6 replies
62 views

I am thinking of investing in startups via sites like StartEngine.com, WeFunder.com, or SeedInvest.com. I also have a LLC set up for another business my wife and I are contemplating to start. Wondering if it's better to invest via those sites through our LLC or if it's better to do it as individual. I am a non-accredited investor, so not dealing with the amount of money involved as a credited investor. Wondering what the pros and cons are of going either route.

Not A Product Question

Best answer by Anonymous_

It really makes no difference from an income tax perspective and will most likely have little (probably no) impact from any other perspective.

Anonymous_Answer

Level 15

It really makes no difference from an income tax perspective and will most likely have little (probably no) impact from any other perspective.

mitul1203Author

Level 2

Thanks @Anonymous_, what about these 2 scenarios:

1) What about in the benefit of being able to pass on the equity holdings (equity in startups in this case) to heirs. With an LLC you can transfer it to or add people into the LLC without triggering taxes. Whereas, if it were to be held individually and I pass on, wouldn't the inheriting person have to pay taxes on that equity that is being passed on to them? Or will taxes only be paid if the owner sell stake in the company.

2) If there were profits generated from the startup investments within the LLC, wouldn't I be able to write off expenses against that profit? I can't do that if I invested individually.

Anonymous_

Level 15

An inheritance (with the exception of certain retirement plans) is generally not subject to federal income tax. The estate tax threshold is currently over $12 million and it would not make any difference whether you passed on an interest in an LLC or an interest you held individually.

You are not going to be able to deduct your investment expenses either way. If the startup. itself, has expenses, those expenses will be deducted from the startup's gross profit, regardless.