Understanding the Benefits on Tax Deduction for Small Business Investment

Health / Life

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When you want to put your money into a worthwhile investment, you often consider big-name companies and try to figure out which one you’d like to invest in.

There’s certainly nothing wrong with investing in an already-huge company if you can afford to, but snubbing small businesses won’t do you any good either.

When you invest in a small business, you won’t get as much returns as you would get from investing in an already-large business. But when the small business grows, you’d definitely reap more than what you put into it.


Assessing the current status of small businesses


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There are millions of different types of small businesses you can invest in, from promising start-ups to auspicious diamonds-in-the-rough. It’s very important to figure out which small businesses will give you the best value for your investment.

Forbes contributor Ryan Caldbeck explained that there are important factors you have to consider. One of this is the annual income of small businesses you are interested in.

One way of ensuring that the small business you want to invest in is profitable is to check its gross margin, the difference between the company’s revenue and what it cost the company to produce its products.

Having a thin gross margin means that there is also little room for error, so you may want to stay away from companies with these.

The annual income of small businesses isn’t the only important thing, however. The brand’s uniqueness is also important. Investing in a small business that stands out from the rest of its kind is a good way of ensuring that the business can only go forward and grow.


Benefits for investors beyond the annual income of small businesses


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The business’ revenue and even the income payout to the investor are only some of the benefits small business investors can get.

According to the US Internal Revenue Service, small businesses with assets amounting to less than $50 million may meet the IRS standards for Qualified Small Businesses.

For investors, having an investment on a QSB means that they can deduct up to 50 percent of their capital gains from their taxes.

If they decided to invest more on the QSB, they may even be able to defer paying taxes on their capital gains.