South Carolina Angel Investor Tax Credit

If you are an entrepreneur or angel investor doing business in South Carolina, you need to know about the SC angel investor tax credit. There aren't many guides about it, so we hope the information below is useful.


Qualifications

To qualify for the credit, an angel investor must make an investment in a company that has been recognized as qualified by the South Carolina Secretary of State. The company must: 

  • be less than five years old
  • be headquartered in SC
  • have 25 or fewer employees
  • have gross income under $2 million in any previous fiscal year
  • be engaged in manufacturing, processing, warehousing, wholesaling, software development, IT services, R&D, and certain service-related facilities
  • complete an application with the Secretary of State and receive approval prior to receiving a qualifying investment

In addition, the angel investor must:

  • be accredited per SEC rules
  • make the investment after the company has been qualified by the Secretary of State
  • apply for the credit prior to December 31st of the year in which the investment is made
  • file a tax credit form with your tax return
 

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For a qualified investment, an angel investor can claim a tax credit that: 

  • is equal to 35% of the investment amount (e.g. a $10,000 investment would be eligible for up to a $3,500 credit)
  • can be taken up 50% in the year of the investment, with the remainder available in subsequent years (up to 10 years from the year of investment)
  • is a maximum of $100,000 for a single taxpayer in a single tax year - so an individual investor can claim a tax credit for up to $285,714 of qualified investments in a single year ($285,714 times 35% = $100,000). Married taxpayers can take $100,000 each
  • is eligible to be carried forward for up to ten years if not used
  • may be sold, exchanged, or transferred, but only once. Non-SC investors (with no SC income tax liability) or SC investors that cannot use the credit can sell their credit to a SC taxpayer

It takes some preparation to ensure you receive the credit, so we strongly recommend you contact us, your tax adviser, or an accounting firm on our partners page before you invest.


Resources

1)  The form for a business to apply to the Secretary of State to become a "qualified business" is on the Secretary of State's website. 

  • Entrepreneurs: complete this before you take an angel investment.
  • Investors: make sure the company has become qualified before you make an investment.

2)  The application form for an investor to apply for an allocation of the tax credit (Angel Investor Credit 1350 / SC SCH.TC-56A) is located on the Department of Revenue's website. Complete this once you make the investment - in the same calendar year.

3) Once you have your allocation from the Department of Revenue (by January the following year), include your amount in the tax credit form here filed with your tax filing.

4) South Carolina Angel Tax Credit: What Investors and Entrepreneurs Need to Know

5) If you need assistance selling your tax credit, please let us know and we will be pleased to help.

Or, join VentureSouth. VentureSouth members get their applications (for investments made through VentureSouth) filed automatically as part of their membership.


TRANSFERS

If you are interested in selling your credit, or would like to buy the credit to reduce your taxes this year, please contact us.  Also take a look at our blog post FAQs for buyers and sellers for some other nice features about transferring credits.


References

As well as the documents above, you can read the original bill, The High Growth Small Business Job Creation Act of 2013.

More information is available in the SC Department of Revenue's Revenue Ruling #14-6.

And you can hear VentureSouth's Paul Clark chat with Ben Glenn at Bauknight Pietras & Stormer about tax issues for angel investments, including the SC angel investor tax credit, here.