Accounting & Tax Tips
December 3, 2022

How to Get a $50,000 Year-End Tax Credit for Investing in Virginia Technology Businesses

As the year comes to a close, many businesses are seeking productive ways to reduce their taxable income. Did you know the State of Virginia provides tax credits for qualified investments made to qualified businesses? The Qualified Equity and Subordinated Debt Investments Credit, otherwise known as The Angel Investor Tax Credit, offers a tax credit of up to 50% of the value of a qualified equity or subordinated debt investment in an eligible business. 

What is the Allowable Tax Credit? 

The maximum tax credit is $50,000 or the taxpayer’s Virginia income tax liability, whichever is less. The credits are nonrefundable but may be carried forward up to 15 years to offset future Virginia state taxes. The credit may be claimed against individual income tax and/or fiduciary income tax. There is a $5 million statewide cap on the total amount of credit available.

What is a Qualified Investment?

A qualified investment is when a taxpayer makes a cash investment in a qualifying business in exchange for equity or subordinated debt. An investment will not be qualified if the taxpayer, or any family members or entities affiliated with the taxpayer, receives/has received compensation from the qualified business in exchange for services provided within one year before or after the investment date. 

What is Subordinated Debt?

Subordinated debt is a loan to the eligible business that does not require repayment of the principal for the first three years after the loan is provided. Further, the loan cannot be secured by any of the business’ assets or guaranteed by the taxpayer or any other person.   

What is a Qualified Business? 

To be considered a qualified business, the following criteria must be met:

  • Gross revenues less than $3 million in its most recent fiscal year;
  • Must have a principal office or facility in the State of Virginia;
  • Primary business or production must take place in Virginia;
  • ​Since its existence, has not obtained more than $3 million in aggregate gross cash proceeds from the issuance of its equity or debt investments (not including commercial loans from chartered banking or savings and loan institutions); and
  • Is primarily engaged in the fields of: 
    • advanced computing, 
    • advanced materials, 
    • advanced manufacturing, 
    • agricultural technologies, 
    • biotechnology, 
    • electronic device technology, 
    • energy, 
    • environmental technology, 
    • information technology, 
    • medical device technology, 
    • nanotechnology, or 
    • any similar technology-related field determined by regulation by Virginia Tax to fall under the purview of this section.

How to Apply for Virginia’s Qualified Equity and Subordinated Debt Investments Credit

Potential investors must file Form EDC by April 1 of the year following the investment to apply for the credit. The state will notify taxpayers of the credit granted by June 30.  

The credit will then be claimed on Schedule CR as part of the taxpayer’s annual Virginia state income tax returns. Considering the timing of Virginia’s credit authorization, most taxpayers will need to file during an extension period.  

Additional resource: § 58.1-339.4. Qualified equity and subordinated debt investments tax credit.

If you are interested in learning how to take advantage of this tax credit and support new businesses developing innovative technologies, please click on the button below to schedule a consultation.    

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