By David A. Nash, CPA, Tax Manager
Georgia’s economy is booming thanks in part to the film incentives and to the vital role startups are playing in bringing jobs, infrastructure, visitors, and wealth to the state’s inhabitants. Angel investors play a significant role in nurturing start-ups and the state provides encouragement to these investors in the form of the Angel Investor Tax Credit (AITC). The AITC is available to individuals and businesses who invest in a Georgia early-stage company and can amount to 35 percent of the investment made up to $50,000 per individual per year. The AITC was set to expire at the end of 2015, but earlier this year the Georgia Assembly extended the provision to the 2016, 2017, & 2018 years for credits in 2018, 2019, & 2020 respectively.
How does an investor get the AITC?
- The business being invested in must register as a Qualified Business prior to receiving the investment. A copy of the Form IT-QBR (Qualified Business Registration) should be provided to your tax advisor in the year that you make the investment.
- The business must be engaged in manufacturing, processing, online and digital warehousing, online and digital wholesaling, software development, information technology services, or research and development. There are select services that would qualify, but retail is not a qualified business.
- The business must have fewer than 20 employees, gross revenues of less than $500,000, and must have received a cumulative amount of investment funding of less than $1,000,000.
- Form IT-QI-AP (Qualified Investor Application) must be filed in the year for which the credit will be claimed. For investments made in 2015, an IT-QI-AP will be filed between September 1st and October 31st of 2017.
How is the AITC calculated?
- The credit amount is 35 percent of the investment made up to $50,000, so the maximum investment eligible for the credit is $142,857.
- The credit during the coming years is capped to a statewide total of $5,000,000 each year. That means that all applications received during a year may need to be prorated based on overall demand. For example, if you applied for $25,000 of credit in a year where there were $10,000,000 in total credits applied for throughout Georgia, your approved credit amount will be $12,500 (25,000/$10,000,000*$5,000,000=12,500).
Are there any limitations?
- The AITC is not applicable if the company has claimed the film credit.
- The Qualified Investor cannot participate in the business for compensation during the 2 years following the investment.
The AITC is an important opportunity for angel investors. It provides additional incentive to these facilitators of growth, but investors need to make sure they and their target business have all their paperwork completed and filed. So, go ahead and be an angel investor; just make sure you get your little slice of heaven.
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