On January 25, 2017, the Iowa Economic Development Authority released the qualifying business application for the Angel Investor Tax Credit. The investor eligibility application was released previously. Businesses that conducted qualifying capital raises during 2016 can seek certification so their investors can claim the tax credit. Both the business which conducted the equity offering and the investor must apply in order for the investor to claim the credit. Keep in mind that the deadline for investors to apply is March 31st. There is a limit of $2 million for these tax credits and they are allocated on a first-come, first-served basis. If you made an investment in an early stage company that might be eligible, now is the time to contact that company and see if it will apply to be an eligible business under this program.
The Angel Investor Tax Credit provides a refundable credit for eligible investors. Since the tax credit is refundable, investors can take the credit even if they do not pay any Iowa income taxes. The tax credit is equal to 25% of an investor’s equity investment in a qualifying business. There is an annual limit of $100,000 in tax credits per household or $500,000 in tax credits for any one business which makes qualifying investments. However, corporate income tax filers are not eligible. Investments in convertible promissory notes are eligible to receive the tax credit once the promissory note converts to equity in a qualifying business.
In order for a business to be eligible, its principal business operations must be located in Iowa. A company will meet this requirement if it has at least 50% of its employees in Iowa and its headquarters are located in Iowa. Further, the company cannot be primarily engaged in retail sales, real estate, providing health care services or any services that require a professional license. Qualifying businesses must have been in operation for six years or less and the company must participate in an entrepreneurial assistance program. In addition, the company’s net worth must be less than or equal to $10 million. Qualifying businesses must have at least two investors and completed investments or binding commitments of at least $500,000 from investors.
The applications for both the qualifying business and the investors are only a couple of pages each and are not difficult to complete. However, due to the limited amount of tax credits available, if you believe your company is eligible or you made an investment which may be eligible to receive the credit, now is the time to act.
