An investor account is a custodial account maintained for the benefit of AngelList investors. You can transfer funds from your bank to your investor account and use those funds to invest in startups and syndicates.
You can also use the account to receive distributions when one of your investments has an exit.
You create an account when you fund a syndicate or angel fund.You may have multiple investment accounts for multiple investment entities: for example, you may have multiple investment accounts if you invest out of both a personal account and a trust.
A self-directed IRA is just like any other Individual Retirement Account (and can be a traditional, Roth or SEP IRA), but instead of limiting you to invest in public company stocks, bonds and mutual funds like IRAs held by your broker-dealer or bank, self-directed IRAs are set up to allow you to invest in a broader range of assets, including alternative investments like private company stock, notes, and real estate. The gains from investments properly made in a self-directed IRA are tax-deferred or tax free, just like the gains in any other IRA.
All IRA accounts are required to be held through a trustee or custodian. The trustee/custodian provides custody of the assets (documents and cash), processes all transactions at the direction of the IRA owner, maintains records pertaining to the account and transactions, files required IRS reports, issues client statements, helps clients understand the rules and regulations pertaining to certain prohibited transactions, and performs other administrative duties.
At this time, AltoIRA is the only self-directed IRA provider integrated with AngelList.
AngelList does not charge any fees for IRA investing. Self-directed IRA administrators charge annual administration and other fees. For AngelList investors, Alto offers no-hidden-fee pricing as follows:
AltoIRA fees for AngelList investors:
Separate fees apply for use of AltoIRA services outside the AngelList platform. For further information on pricing and terms visit www.altoira.com/pricing.
The vast majority of startup investments on AngelList can be made using an AltoIRA account. Some restrictions do apply, however.
You cannot use your self-directed IRA for certain prohibited transactions, such as investments in start-ups controlled by you or your family. You are responsible for determining your eligibility to make any investment through a self-directed IRA and should consult with your tax adviser before making investment decisions using IRA funds.
When you set up an AltoIRA account, you will give Alto directions to transfer funds from your existing IRA at another institution into your new self-directed IRA with Alto. This transfer of funds process can take 3-5 days on average, so if you are investing in an AngelList deal with a closing deadline, please plan accordingly. The same goes if your AltoIRA account lacks sufficient funds when you need to make follow-on investments and capital call contributions.
For this reason, we suggest planning ahead and keeping a balance in your AltoIRA account.
K-1s for investments made through your self-directed IRA will be sent to your IRA administrator. Investment income and gains in your AltoIRA account should be treated for tax purposes like any other IRA account of the same type (Traditional, Roth or SEP as the case may be). There are circumstances in which the income produced by an investment in your IRA could trigger certain types of taxes. For example, funds that invest in limited liability companies may generate Unrelated Business Taxable Income (UBTI) and/or Unrelated Debt-Financed Income (UDFI) that would be taxable for your IRA. Your IRA administrator will provide you with appropriate tax forms for your IRA account.
AngelList cannot advise you on the tax consequences of your IRA investments.
Forms W-8 and W-9 are forms which the IRS requires in order to determine tax withholding.
These forms impact how Angellist is required to withhold on distributions and income allocations for your investments.
W-9 forms do not expire.
Most W-8 forms have a life of 3 years from the end of the year the form is signed. For example, a form signed on November 2, 2018 will be valid through December 31, 2021.
You must provide an updated form W-9 or W-8 whenever a change in your circumstances makes an existing form inaccurate.
Distributions from investments on AngelList will not be processed until a valid Form W-8 is on file.
In addition, the IRS may impose onerous withholding obligations on accounts for which valid withholding forms aren’t available. These withholding obligations can have detrimental effects on economic returns and require significant additional administrative overhead.
If you have not completed your tax forms, we encourage you to do so here: https://angel.co/invest/tax-documents.
The way you use tax estimates is up to you and your tax advisor.
Most investors take one of two approaches:
Option 1: Use the taxable income estimates to make estimated tax payments prior to filing a final tax return.
Option 2: Use the estimate in place of the actual K-1 and include that in filing a tax return. If the final K-1 received is materially different from the estimate, investors typically either amend the filed return or include the difference in the following year’s tax return.
The estimates we provide incorporate our best predictions of final taxable income based on information available at the time the estimate is prepared.
Most estimates will be consistent with final returns, but there is a possibility that some amounts on estimates will differ from final K-1’s.This is most frequently the case for investments in passthrough operating companies where the underlying K-1 from the portfolio company is delayed.
We are required to send you a K-1 from each fund that has taxable income or loss during a year -- even if you are not a U.S. resident. The fund also sends a return to the IRS. Whether or not you need to file a US tax return depends on many factors. We suggest that you contact a CPA or tax attorney who can give you personalized guidance.
The following links provide instructions for the most common tax forms:
We are not tax advisors and so are prohibited by U.S. law from providing formal advice in filling out tax forms.
If you require additional guidance, we suggest you contact a CPA or tax attorney who is familiar with your situation and can provide you with individualized advice.
US Tax rules dictate that investments can be written off when an investment has become entirely worthless. This is a different standard than when an investment may be written down for financial accounting purposes.
The wind-down process can sometimes last many months. In these cases, the formal tax write off may occur substantially after a company first announces that it is shutting down.
Tax returns and K-1’s are only required to be filed with the IRS if there is taxable income or loss to report for a given tax year.
If a fund didn’t generate taxable income or loss, no K-1 was required.
This typically applies to SPV's that only invested in SAFE's or made equity investments in corporate entities.
Non-US investors will receive Form 1042-S from each fund in which they earned interest, dividend or royalty income.
This most commonly occurs in funds that invested in convertible notes.
You will be notified when a Form 1042-S is posted to your investor dashboard.
This most frequently happens for two reasons:
1. Convertible Note Interest
Under U.S. tax law, the interest that accrues on convertible notes during a period usually must be included in taxable income even when the company does not have an obligation to pay it during the period.
2. Passthrough Income from LLC's & Partnerships
If a fund you invested in invested in a passthrough operating portfolio company, that operating company may pass through taxable income without a corresponding cash distribution. This allocation may in turn flow through to your K-1.
We provide prior tax year information sequentially as it becomes available:
• February: Angellist will publish a summary of your investments and information about which investments will have a K-1.
• March: Angellist will publish a tax package that includes either a K-1 or an estimate for all investments requiring a K-1 for the prior tax year.
• After March: Tax packages that include one or more estimates, such as investments in passthrough portfolio companies, will be updated with final K-1’s as outstanding tax information is received and processed.
We still expect to deliver all K-1's prepared internally by March 31st. We expect that some funds awaiting a K-1 from a portfolio company or external administrator may be delayed due to business conditions related to COVID-19.
All investor tax packages will include estimates for funds where final K-1's are not yet available. See more on the use of estimates here.