Angel Investing: Is an LLC Right for Me?
Citrine Angels hosted its first event of 2024 on January 23 at HeraHub DC. Members and their guests connected for an informative session on the benefits and drawbacks of forming an LLC for investment purposes. The panel was moderated by member Lisa Conners, an executive coach and owner of Ever Better Coaching and Consulting. Featured panelists included Susan Velasco, vice president of product management at Capital One; Sarah Moore Johnson, founding partner of estate planning firm Birchstone Moore LLC; and Yoli Martinez-Nadal, tax partner at CohnReznick.
As the discussion began, it was pointed out that each person’s financial situation is unique and that the information discussed should be used to create a hypothesis about the best investment vehicles to use for angel investing. Each panelist explained their personal reasoning behind using an LLC, be it for tax expenses, beneficiary support, or liability concerns. From a beneficiary standpoint, LLCs enable the owner to pass multiple angel investments made within the LLC onto heirs in a straightforward manner. In addition, expenses related to angel investing can be deducted as LLC business expenses under certain circumstances. The panel emphasized the importance of setting up the LLC and related checking account before the next investment opportunity comes around; lack of setup could result in a missed investment. It is also possible to transfer previous investments into a newly established LLC.
In addition to LLCs, participants discussed the pros and cons of making angel investments using personal accounts, self-directed IRAs, and revocable trusts. Several attendees shared they use self-directed IRAs for tax saving reasons, although they noted they didn’t expect to see the money until retirement. Revocable trusts are helpful for providing a seamless transition if the LLC owner dies or becomes incapacitated. Much of the administrative burden would be relieved in those circumstances. Attendees were encouraged to seek additional input from professionals such as a lawyer, accountant, and/or financial planner.
Attendees were curious about whether it was more advantageous for beneficiary, tax, and legal protection purposes to use a self-directed IRA, a single member LLC, a partnership LLC, or a revocable trust. The answer: it depends entirely on your individual circumstances.
The panel also discussed the Corporate Transparency Act which went into effect on January 1st, 2024 and requires all LLCs to file member information with the federal government. The panelists emphasized the need for an EIN to ensure compliance.
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