How to Prove You Are an Accredited Investor

Money and Finance

The process of showing that you are an accredited investor does not have to be that complicated. However, you must qualify for the status in order to participate in the types of investments only open to these investors. The U.S. government has set certain financial barriers in place to restrict who can operate as an accredited investor. Below we cover some important aspects of how to qualify as an accredited investor and how to prove it.

The reason the government has put the restrictions mentioned above in place is to protect everyday investors from suffering a devastating financial loss because of an inability to absorb the risk associated with these investments if they happen to fail. These investments include private equity, venture capital, direct ownership of firms, and hedge fund investments carry higher risks than common stock and bond investments.

The high financial requirement precludes regular investors from obtaining access to certain investment deals that are open to wealthier accredited investors.

How to Register as an Accredited Investor
Investors who want to meet the qualifications to operate as an accredited investor must clear certain hurdles. They must have an annual income of more than $200,000 as a single individual (or $300,000 with a spouse) in the previous two years and a reasonable expectation to meet the same level of income for the current year; or possess a net worth greater than $1 million, not including their primary residence and after discounting all other liabilities.

Establishing one’s yearly income is relatively easy and straightforward. Determining your net worth can be a bit more complicated. In order to do this you will need to assess the value of assets that you own, and disclose all liabilities.

To obtain the info necessary to qualify as an accredited investor, and prove it in a compliant way, you will need to carry out the following steps:

Get your tax returns organized. You will need to gather the last two years of your federal tax returns to establish that you have the financial capability – in this case, income of at least $200,000 – to be an accredited investor.

Get a copy of your credit report. The qualified person who is verifying your accredited investor status will utilize information from your credit report to evaluate your debts and review your financial status more generally. Your credit report must be dated within the last 90 days.

Collect your banking and investment information. The person verifying you may want to look at your bank account and investment company statements in order to evaluate your assets. You should provide up-to-date, accurate, and certified copies in addition to real estate holdings and titles you may own. The law does not require disclosure of all assets – only a net worth of at least $1 million.

Now that you have a better idea how to register as an accredited investor, consider the benefits of the various investment opportunities available upon qualifying.