Investment Taxes
Do I need to pay taxes on my investment?
It’s tax time, which has a lot of people asking how investing in Legion M affects their taxes. We’re not tax professionals, so we reached out to a couple members of the Legion M community who are, and asked them for their advice. Below are short answers to the most common questions we receive, followed by more detailed info for those that are interested.
Thank you to Julie DeLong of Backyard Bookkeeper and Stephen Mishler (CGMA, CMA, CPA ) of CFO Management Services Inc. for helping to prepare the following information. Note that this article is provided for reference only, and should not be relied upon for your particular tax situation.
-Legion M Team
FREQUENTLY ASKED QUESTIONS
Do I have to pay taxes on my investment?
INVESTED IN LEGION M (the company): Not unless you’ve sold your shares. Legion M stock is similar to stock you purchase on the NYSE or NASDAQ in that you don’t realize gains or losses until you sell your shares. At that point, you will (hopefully!) owe capital gains taxes on the difference between the sale price and the price you paid for them. The only other time you might have tax consequences is if we have a taxable event (i.e. a dividend payment), but we have not done so in the past, and don’t have any plans to in the immediate future.
INVESTED IN A PROJECT-SPECIFIC OFFERING: If you are issued a Schedule K-1, particularly if there are any disbursements, you may be required to pay taxes on any gains. So we encourage you to consult your tax professional to determine if there are any potential tax consequences.
Will I get a K-1, 1099 or other form?
INVESTED IN LEGION M (the company): Not unless we have a taxable event like a dividend payment. We have not done so in the past, and don’t have any plans to do so in the immediate future.
INVESTED IN A PROJECT-SPECIFIC OFFERING: Those directly invested in projects (such as You Can Call Me Bill, My Dead Friend Zoe, Fade to Black, and similar), may get a Schedule K-1 for those, particularly whenever any distributions have been made. In any case where that might be applicable, the documents are usually sent out during Q1, prior to the filing deadline for the relevant tax year.
Is there any tax benefit I get from investing?
INVESTED IN LEGION M (the company): Maybe, but not until you sell your shares. Upon selling shares, you may qualify under Sec 1202 or Sec 1244 for favorable tax treatment. This can be complicated, and tax rules change year to year. If you have a large amount invested, ask your tax advisor or look more into it online (chart provided below as a guide).
INVESTED IN A PROJECT-SPECIFIC OFFERING: Maybe, so we encourage you to consult with your tax professional to determine any potential benefits.
Can I deduct my investment somehow?
INVESTED IN LEGION M (the company): No; it is treated as an investment (not a deductible expense).
INVESTED IN A PROJECT-SPECIFIC OFFERING: In some instances, maybe, so we encourage you to consult with your tax professional to determine if there are any qualifying deductions after you receive your Schedule K-1.
Do I have to report my investment on my tax forms?
INVESTED IN LEGION M (the company): Not until you sell your shares. In the meantime, keep track of date, number of shares bought, and price paid, so you can report it when the time comes.
INVESTED IN A PROJECT-OFFERING: If you are issued a Schedule K-1, the financial information on that form typically must be reported when you file your taxes. We encourage you to consult with your tax professional, if you have any questions.
MORE INFO
Here’s the underlying principle that helps us answer tax-related questions: the taxes we report and pay each spring are based on our income, whether it’s earned income like wages, or passive income, like rental income, interest income, or investment income. If we have no income, we don’t pay taxes.
When it comes to stocks and shares like the ones we purchased when investing in Legion M (the company) there is no tax effect to you personally until you sell your shares. When sell them, you take the sale price, subtract what you originally paid for them, and whatever is left is subject to capital gains tax. It’s up to you to track both the purchase and the sale, and then to report the correct amounts to the IRS after you sell. Legion M does not issue any kind of statement or tax document to you besides the confirmation documents when you invest. We definitely recommend that when you sell your shares, you consult with a tax professional to make sure your taxes are done correctly.
So the next logical question is, “how do I sell my shares?” That’s a slightly trickier question. Most Legion M shares are freely tradable (the only exception being shares purchased under Reg CF, which are locked up for 12 months after the date of purchase), but currently there is no secondary market where these kinds of shares can be bought and sold. So in order to sell your shares, you have to find someone who wants to buy the shares you own privately, then negotiate a sale price with that individual, collect their money, and when everything is ready, transfer of shares (you can reach out to Legion M for more information on transferring). If the shares are going to someone who is not a current Legion M investor, you should email team@legionm.com to let us know, so we can ensure they start receiving company updates. Eventually we expect there will be a marketplace/website where people can post JOBS Act shares for sale and be matched with buyers, but because equity crowdfunding is so new, nobody has built one with significant traction yet.
We hope this answers your questions about Legion M shares and taxes. This article has been provided as a guide only. Please consult with your financial and tax advisor on your particular situation and be aware that rules and regulations (Federal and State) are always changing. What applied yesterday or today may not tomorrow.
Julie DeLong
COO, Backyard Bookkeeper
http://www.backyardbookkeeper.com/
Stephen Mishler
CGMA, CMA, CPA
CFO Management Services Inc.
Investing in Legion M could potentially have tax benefits when you sell your shares. For more information, consult with your tax preparer. Source of chart: https://www.thetaxadviser.com/issues/2018/jan/introducing-us-equity-crowdfunding.html