Q&A of the Week August 3, 2022

Question

What is angel investing and how is it taxed?

Answer

An angel investor is an individual who invests in a business startup in a very early stage, typically in exchange for ownership equity or convertible debt. Angel investors' goal is for the higher risk to lead to higher returns. If the startup fails, the angel investor generally does not expect to be paid back.

Angel investing is taxed as a capital gains tax. For example, if you invest in a startup and the startup is sold and your share becomes worth more than your original investment, you pay capital gains taxes on that amount.