Last week saw the window close for claiming the SC angel investor tax credit for 2014, and last week Matt and Lowcountry Angels ran seminar explaining how the tax credit works. We have an introduction to the credit on our “tax credit” page.
These events prompted another look at an overlooked aspect of the credit – how it can be used by founders of companies.
The credit is limited to “accredited investors” based on the SEC’s rules about who is allowed to invest in companies that are not “public companies”. “Accreditation” is usually based on wealth or income criteria.
But another way to be accredited is to be “a director, executive officer, or general partner of the issuer of securities, or any director, executive officer, or general partner of a general partner of the issuer.” That enjoyable legalese basically means founders of companies are automatically accredited investors in their own companies.
Therefore you, as a founder of a company, could get a state income tax credit of up to 35% of what you invest (in cash) in your startup – if you follow the other rules about the credit. We know many founders start companies from an existing job (it’s the main reason why SC improved so much on this ranking): the tax you paid on income from that job, or from the consulting work you do to pay the bills, can be reduced – giving you more resources to develop your high growth startup (so you can hopefully pay lots of capital gains tax later!).
Too late to claim it this year, but if you’re starting a company in 2015 and going to put your own money in, get the business qualified before you do!