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. We hope the notes below will be a useful guide to help you navigate the qualifications and applications for the credit.
INVESTOR QUALIFICATIONS
To qualify for the credit, an angel investor must make a direct cash investment into a company that has been recognized as a “Qualified Business” by the South Carolina Secretary of State. In order to qualify, the company must:
- Be less than five years old.
- Be headquartered in SC.
- Have 25 or fewer employees in the state.
- 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 before 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.
- Follow these instructions to complete an application for the credit before December 31st of the year in which the investment is made.
- File a tax credit form with your tax return.
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 to 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 suggest you contact us, your tax adviser, or an accounting firm before investing.
RESOURCES
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.
If you’re applying for the South Carolina angel tax credit, fill out the allocation through the MyDORWAY on the DoR website. Click here for a tutorial. Complete this once you make the investment – in the same calendar year.
Once you receive your allocation from the Department of Revenue (by early February the following year), include your amount in the tax credit form here filed with your tax filing.
If you need assistance selling your tax credit, please let us know and we will be pleased to help. Or, join VentureSouth! We complete the credit application process on behalf of our members and pass the credits through with our annual K-1 statements.
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.
