The Angel Investor Job Creation and Innovation Act created a personal income tax credit for qualified investments in certain Delaware based small businesses. It is a refundable tax credit worth up to 25% of the investment. Qualified investors and high tech small businesses are now able to utilize this program, which encourages innovation and economic development in the “first state”.

The amount of the credit equals 25% of the angel investment. Credits for a calendar year cannot exceed $250,000 for joint filing taxpayers, and $125,000 for all other individuals. The credit requires a minimum investment of $10,000 for an individual, and a $30,000 minimum investment for an investment fund.

Officers or investors that control 20% or more of the business are not eligible for the credit. Investors can claim the credit on their Delaware income tax return, as long as the investment has been held for six months.

The Act imposes a cap of $5 million in total credits for each calendar year, and $500,000 in investments for any single qualified business and is available from 2019 through 2021.

Eligible businesses require the following:

  • Researching or developing a proprietary product or process in a qualified high technology field (such as renewable energy, food technology, biotechnology)
  • Headquartered in Delaware, with fewer than 25 employees
  • 51% of total compensation paid for work performed in Delaware
  • Has not been in operation for more than ten years
  • Has not received private equity of more than $4 million
  • Has not issued securities on a public exchange
  • Funds must be used for qualified expenditures

Delaware is now accepting applications to be an Investor, Investor Fund, and to be certified as a Qualified Business. You can fill out an application as well as obtain more information at www.business.delaware.gov/incentives.

One last note about the credit. There are recapture provisions. The investment must be held for three years, or the credit must be repaid. In addition, if the business does not meet the employment or qualified expense requirements, the credit must be repaid.

Brooke Carroll, CPA

bcarroll@stephanoslack.com

302-777-7400

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