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The Valley Current®: How safe tax-wise are SAFE Agreements?
Manage episode 429387088 series 3562100
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Are SAFE (Simple Agreements for Future Equity) as safe tax-wise as convertible debt? SAFEs were created by Y Combinator to simplify fundraising by avoiding lengthy negotiations associated with convertible notes, and unlike traditional loans, a SAFE agreement is a promise for future equity. Tax treatment varies depending on whether a SAFE is considered debt or equity. This means investors can deduct total losses from their taxes, which is beneficial if the startup fails, and losses are classified as capital losses (with a $3,000 annual deduction limit) when treated as equity. So, what should investors know before going all-in on a SAFE agreement? Today host Jack Russo asks CPA, Steve Rabin to discuss the tax implications of using SAFE agreements versus convertible notes for startup funding.
Jack Russo
Managing Partner
https://www.linkedin.com/in/jackrusso
"Every Entrepreneur Imagines a Better World"®️
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