People in the fortunate situation of being financially sound and well prepared for the future, often look for ways to invest some of their money. There are unlimited opportunities when it comes to spending extra cash. You could choose to “play the market” as some call it, purchasing stocks, bonds, or mutual funds, or open a college fund or retirement account. Whichever route you choose, the goal should be to increase the value of your initial investment.
One way people choose to grow their money is by investing in a business. Sometimes, they are asked by an acquaintance or family member to help them start or grow a business. Other times, the business owner is unknown to them, but in either case, the investor obviously hopes to earn their money back and more. How to repay the investor depends on the arrangement made between the business owner and the investor. Some investors earn interest from the business owner. Others may be made a partner in the business in exchange for their investment.
CPA Accounting and Tax Services has guidance for people or organizations looking to invest in a business. Our team will investigate the opportunities with you to learn about the business’s current corporate structure and the investment options that may be available and advisable for you. Is a straight cash provision best or would a stock purchase, if applicable, be better? Should you become a partner in the business in return for your infusion of capital? Each situation carries different tax implications. Understanding them can help you make the best decision that lines up with your long-term goals.
The obvious hope for any investor is that their investment helps a business become successful. There are no financial gains from a business that is struggling or failing. If indeed, there are gains and you receive interest, dividends, or some other form of repayment or income, you must report this on your tax return and pay applicable taxes. We are experienced in these matters and will make sure the proper forms are completed and submitted at tax time.
Statistically, more than half of the business investments made in this country end in loss, so it’s important that you consider your decisions carefully. If you do invest in a business that fails, we can help you report this loss to the IRS in the most advantageous way possible. You may even be able to recoup some of the money you invested. Certain deductions are allowable and some associated expenses can be written off when it comes to business investment losses.