Tax & Liability Impact of Investing in PE and VC
By Alan G. Orlowsky, JD, CPA
How Do Taxes Affect ROI?
How do K-1 income, loss, and gain, and the taxes or tax savings they generate, impact an investment in a fund? That partly depends on your personal and family net worth, income, portfolio diversification, and other financial considerations. I can’t generalize about how any investment will affect your taxes, or how taxes will change ROI. If you are planning to invest in a fund, whether an LP or LLC or any other structure, be sure to discuss the potential tax ramifications with your tax adviser before you make a commitment.
Under federal law, the fund manager may be responsible for partnership debts and lawsuits, at both the personal level and the entity level. The members, on the other hand, do not have liability exposure; the most you can lose as a member is your investment in the fund — all of it, but no more than that.
If you have more specific concerns about liability, please ask your lawyer for advice. Although I am both a CPA and a lawyer, I do not intend to offer tax or legal advice, as it relates to a particular individual or situation, in this article.
About the Author
Alan G. Orlowsky is a principal at the Chicago-area law firm Orlowsky & Wilson, Ltd.