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 preparing 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?
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.
Will I get a K-1, 1099 or other form?
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.
Is there any tax benefit I get from investing?
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).
Can I deduct my investment somehow?
No; it is treated as an investment (not a deductible expense).
Do I have to report my investment on my tax forms?
Not until you sell your shares. Keep track of date, number of shares bought, and price paid (all of which is available in your Carta account), so you can report it when the time comes.
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 in Legion M 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/WeFunder do not issue any kind of statement or tax document to you besides the confirmation documents when you buy and sell. 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, like the New York Stock Exchange. In order to sell your shares, you have to find someone who wants to buy the shares you own, negotiate a sale price with that individual, collect their money, and then inform Legion M about the new owner so they can transfer the shares. 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.
