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I was thinking about contacting an investor, and they will want to know how much money I will need and for what. I am curious, in the US, if what I ask for should include any taxes, and also, what types of taxes one would expect to pay on the money being given to the business. A quick google search or three on the subject quickly got into subjects about corporate gains and investor interest profits... and I got pretty confused pretty quick.

In short, how much (or what rates/etc) will Uncle Sam take out of the money that specifically was invested into my company to pay for things, and should the said removed money be included in any projected budget of what is needed.

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    I'm voting to close this question as off-topic because it is about business finance and not personal finance – Dilip Sarwate Aug 30 '17 at 22:18
  • Thanks, i'll take it to the correct stack exchange. Thanks for your help. Before I delete it, is there any chance you can suggest which stack exchange I should ask this question at? Thanks! – return true Aug 30 '17 at 22:28
  • Unfortunately there is no business finance stack exchange. I proposed one a while ago but it never got any traction. IMHO, small business accounting where you are an owner is sometimes on-topic here, though I don't feel the criteria is consistent. – TTT Aug 31 '17 at 1:58
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    In the US, taxes are levied on profits, not investments. You don't pay a tax when you buy stock, you pay tax when you sell the stock and make a profit (or you get a deduction for the loss). And a company does not pay tax on capital raised - it pays taxes on its business profits. So taxes should not be an issue here. – D Stanley Aug 31 '17 at 13:22
  • This might make sense at Startups.SE although I think that this is on-topic here. – Brythan Sep 1 '17 at 2:53
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Do you mean how much income tax the IRS will assess? Loans are not income, therefore they do not incur income tax. So as long as the money isn't being given, but being loaned, you don't have to pay income tax on it. And just in case you think there's a loophole of "Instead of paying my workers, I'll just 'loan' them their paychecks, and then forgive the debt at the end of the year", no, the IRS does consider loan forgiveness to be a form of income. So you need to look at whether the loan is going to you, or whether your business is a separate legal entity that is getting the money.

If it's a capital contribution, then you are selling a stake in your company. Or, more precisely, as long as the money is going into the business, the company is selling a stake in itself. In that case, there generally isn't tax owed. Here's a Quara question that touches on this: https://www.quora.com/Is-money-raised-through-investors-taxed

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    Typically an "investor" offers an investment rather than a loan, so most likely your second paragraph is more relevant than the first. Either way though, as you said, no tax either way. – TTT Aug 31 '17 at 2:07
  • Although in US (at least for now) a business can deduct as expense interest paid on a loan, but not dividends distributed on an investment -- except (in effect) for passthrough forms like a partnership or S corp. – dave_thompson_085 Sep 1 '17 at 18:20
  • Also - i'm not trying to get around paying anybody ;P I am considering submitting a business plan to someone that might be interested in investing, and I just wanted to know if the investment money gets taxed or not. Thanks again for your clear answer! – return true Sep 8 '17 at 5:10
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This is not really directly answering your question, but I think it's something you need to hear, and it's too long for a comment:

Your business plan for your company you are considering starting should include a forecast of all of your expected revenues and expenses. This includes a forecast for taxes you will owe the IRS on the profits from your business. If your business plan does not yet have this type of information, it is far too soon for you to be asking investors for money.

It is often said that an 'idea' is worthless, it is only the execution of that idea that is worth something. If you only have an 'idea' for a business but have no track record of running a business and no proof that your concept will work, you should take some more time to consider how you can proof viability, before you approach investors. No investor will want to give money to someone without a business plan that includes a forecast of profits (which is backed up by evidence some how).

  • Thanks. I understand where you are coming from, and I appreciate the advice. My main question was, do you need to pay taxes on investments in a company and if that should be penciled into a business plan. For others interested in this same question, and are new to business, the above answer clearly states, 'investments' into a company are not taxed; ergo, it doesn't need to be added into any projected expenses or business plan. Also I appreciate your critique about ideas vs execution. You see, all I have is execution, and I agree, ideas are a dime-a-dozen. Thanks for your help! – return true Sep 8 '17 at 5:08

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