Do I need to report my shares in taxes somehow?
Unfortunately, StartEngine cannot give you any tax or investment advice, but we can provide you with some useful information on how it may affect you for the upcoming tax year.
Tax liability is largely determined by what type of entity you invested in. There are two times of entities, which you may have invested in. You invested in either a C corporation or an LLC. You can find the specific entity type on each company's Form C, which is accessible through the companies “terms” section on their campaign page.
Companies you have invested in will send you tax documents directly. However, most companies don't need to issue anything until a profit is actually made on the stock, or dividends are made. For more updates, please feel free to reach out to the individual companies directly.
What happens if you invested in a C-corporation?
Generally speaking, U.S. investors investing in C-corporations on StartEngine will only need to report income when they realize a gain or loss for tax purposes. In these instances no K-1 is owed to you. You would however need a K-1 if you are obtaining liquidity such as through selling a position, earning interest, or receiving and then selling a digital asset (token). In these cases, the company you invested in will provide you with the required documents. StartEngine will not be sending any of these tax forms to you.
What happens if you invested in a LLC?
If you invested in an LLC and you currently hold a Crowd SAFE, Token DPA or other security, no K-1 will be owed to you. If your Crowd SAFE has been converted, you should reach out to the company you invested in directly for a K-1. If your Token DPA was repaid in Tokens, you should consult with your own legal counsel to determine, if there are any tax liabilities.
What if the company you invested in goes bankrupt?
The company or its trustee is responsible for providing tax documents directly to their investors, to reflect any loss.
What if I sold the security I acquired on StartEngine in a private transaction and realized a gain?
Once an investor sells a capital asset, and realizes a gain, the capital gain is taxable.
What if I sold the security I acquired on StartEngine in a private transaction and realized a loss?
Once you sell a capital asset, at a loss, this qualifies as a capital loss and can be used to offset capital gains.