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Georgia Angel Investor Credit

by: Smith and Howard

February 21, 2014

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The Georgia Angel Investor Tax Credit is designed to incentivize investors to support start-ups located within the state of Georgia.  The credit allows a reduction of tax owed to the state of Georgia dollar-for-dollar until the entire amount has been used or there is no longer any tax owed.  Any unused credits can be carried forward and used within five years.  The credit is equal to 35 percent of the amount invested in a qualified start-up during 2014 and 2015, with a maximum credit allowable per investor per year of $50,000.  For example, an investment of $100,000 could generate a credit of $35,000, which would reduce current Georgia tax to $0 if taxable income was $583,333.

Before making an investment there are some important things that investors should know in order to retain their eligibility for the credit. An investor must be a “qualified investor that makes a qualified investment in a qualified business during 2014 or 2015.”

Qualified Investor

A qualified investor can be an individual or pass-through entity that is accredited by SEC standards.  The investor cannot be compensated by the company in any way for two years after the investment; however, they are allowed to participate in a stock option plan.  The investor is also allowed to serve as an officer, director, or manager of the company.

Qualified Investment

A qualified investment is cash for stock, equity interest, or subordinated debt in a corporation, partnership, or LLC.  The investment cannot be subject to any commissions or other remuneration for the solicitation of the investment (no middle men).

Qualified Business

To be qualified, the business must be headquartered in Georgia, less than three years old, have no more than 20 employees, annual revenue of less than $500,000, and must not have received more than $1 million of cash from equity or debt issuance (not including commercial debt).

The business must be primarily engaged in one of the following business lines: Manufacturing, Processing, Online/Digital Warehousing, Software Development, IT Services, R&D, and Online/Digital Wholesaling.

In order to be an eligible qualified business the company must file an application with the state of Georgia and be approved before the investment is made.  Therefore, planning is important for an investor that wants to retain their eligibility for the credit.

How to Claim the Credit

Investors must apply for the credit between September 1 and October 31 two years after the investment is made.  For investments made during 2014, the investor would be eligible to claim the credit in 2016 to offset any tax owed in that year.  If a start-up ceases operations, dissolves, sells, or merges, the investor could still be eligible for the credit depending on the situation.

Things to Remember

A business must be approved as a ‘Qualified Business’ before the investment is made.  Becoming a qualified business could make a start-up more attractive to potential investors who would like to invest in a new company but want to reduce part of their out-of-pocket risk.

While the primary qualifications for investors, investments, and businesses are listed above, there could be other qualifications that must be met depending on the investor or the business.  Investors should consult with their tax advisor prior to making an investment to ensure that they are taking the necessary precautions to be eligible for the credit.

If you have any questions about the Angel Investor Tax Credit or specialized tax services, please contact Debbie Torrance.  You can also reach them by phone at 404-874-6244.

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