Angel Tax Credit

The Angel Tax Credit is a refundable income tax credit on your Minnesota Tax Return created as an incentive for investors to lend money to small business in certain industries primarily in Minnesota.  The credit is 25% of the investment into the qualified business, however it is limited to $125,000 per individual or $250,000 if you file jointly with your spouse.

For a business to qualify to receive funds subject to the Angel Tax credit they must meet certain criteria.  The eligibility criteria includes:

  1. Headquartered in Minnesota
  2. Focus on high technology or new proprietary technology
  3. Fewer than 25 employees
  4. Been operational for fewer than 10 years
  5. Certified by the Minnesota Department of Employment and Economic Development (DEED) before qualifying investments are made

For a full list of criteria see the (DEED) website at http://mn.gov/deed/business/financing-business/tax-credits/angel-tax-credit/for-businesses.jsp.

To claim the credit, investors must obtain certification from the Minnesota Department of Employment and Economic Development (DEED) before making their investment.  The DEED will issue certificates that should be used in filing for the credit by Mid-February of the year following the investment.

Investors must also meet certain criteria to qualify for certification by the DEED before making their investment.  The requirements include:

  1. Net worth in excess of $1,000,000
  2. Are not an officer, principal, 20% owner in the business or a family member of such
  3. A minimum investment of $10,000

A full list of investor criteria can be seen on the DEED website.

It is not required that the investor live in the state of Minnesota, however to receive the tax credit a Minnesota Tax Return is required to be filed.  Because the credit is refundable, you are not required to have a Minnesota tax liability to receive the benefit.

Investors who receive the Angel Tax Credit will have additional tax considerations.  The Minnesota Department of Revenue will issue investors a 1099-Misc that will be required to be reported on the investors federal and state tax returns as income for the year the credit was received.  The credit is considered Minnesota sourced, therefore Minnesota filing requirements will need to be considered for any non-resident investors.

If all the eligibility requirements are met, the Angel Tax Credit could be a nice opportunity for tax savings.  If you are considering making a qualifying investment please consult your financial and tax advisors for specific consideration on your personal financial and tax situation.

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