I invested $13k in a private startup hoping for a buyout. How will this affect my tax return filing with TurboTax?

Thanks for the explanation! Quick question - if the company sends me any kind of annual statement before they get bought out, do I need to report that? Also, if they go under instead of getting bought (hopefully not!), can I claim a loss?

If the company sends you an annual statement, review it carefully to see if there were any distributions that count as income. Most private companies don't pay dividends in early stages, but if they do, those are reportable in the year received. If the company unfortunately fails and your investment becomes worthless, you can claim a capital loss. This is treated as if you sold the investment for $0 on the last day of the tax year in which it became worthless. You'll need documentation proving the investment became worthless. TurboTax has sections for reporting capital losses, and these can offset other capital gains or up to $3,000 of ordinary income per year.

Did they give you any specific advice about how to track the investment's basis over time? I invested in my friend's startup and they've gone through two more funding rounds, which I think diluted my ownership percentage. I'm worried about calculating everything correctly if they do get acquired.

I'm a bit skeptical about using services like this. Couldn't you just ask your accountant or even the company you invested in for the proper documentation? Why pay for another service?

They provided a detailed basis tracking worksheet that accounts for dilution through additional funding rounds. It makes it super easy to see how your ownership percentage changes over time, which will be crucial for calculating your exact gain when there's an exit event. They even explained how convertible notes and SAFEs affect basis differently than standard equity. As for using an accountant, sure that's an option, but my regular tax guy wasn't familiar with startup investments specifically. The company itself only provides basic investment documentation, not personalized tax guidance. Having a specialized service that focuses just on these types of investments gave me more confidence that nothing would be missed.

How exactly does this work? Do they just keep calling the IRS until they get through? I've tried calling about my S-corp investment questions and always get the "call volume too high" message.

This sounds like a scam. Why would I pay someone to call the IRS for me? And even if you get through, the agents often give conflicting information. I wouldn't trust tax advice from a random IRS phone rep anyway.

It works by using their system that continuously redials and navigates the IRS phone tree until it gets through to an agent. When someone answers, they call you and connect you directly. It saved me literally hours of frustration and hold music. The value isn't just in getting through - it's in getting official answers from the IRS that you can document. I recorded the call details (date, time, agent ID) which gives me penalty protection if I follow their advice. Random internet advice doesn't provide that protection. The IRS agent I spoke with specialized in investment income and gave me specific guidance about my situation that I couldn't find anywhere online.

Do you know if the company itself is required to send you any tax forms annually or only when there's a sale/distribution? The startup I invested in hasn't sent me anything tax-related.

Private companies typically don't send tax forms annually unless they're making distributions to investors. When they do make distributions or when there's an acquisition, you should receive either a 1099-DIV (for dividends), 1099-B (for sale proceeds), or sometimes a Schedule K-1 if it's structured as a partnership. During the holding period, many startups send annual updates about the company status but not formal tax documents. That's why keeping your own records is so important. If they're not sending you any communication at all, I'd reach out to them directly to confirm your investment is properly recorded in their cap table. You don't want surprises when a liquidity event happens!

With a SAFE agreement, you generally don't report anything on your tax return at the time of the initial investment. SAFEs are considered open transactions for tax purposes, and nothing is reportable until a triggering event occurs (like conversion to equity during a priced round). When the SAFE converts to equity, that conversion itself is typically not a taxable event - your cost basis in the shares you receive will be the amount you initially invested in the SAFE. The holding period for capital gains purposes usually starts when the SAFE converts to equity, not when you purchased the SAFE.