What You Need to Know About the Angel Investor Tax Credit (AITC) in Massachusetts
byTyler Rich, CPA, MBA, GW & Wade Associate
Are you an angel investor in a Massachusetts-based Life Sciences company? If so, you may be eligible to take the Massachusetts Angel Investor Tax Credit (AITC).
The Angel Investor Tax Credit program is offered to investors that fund early-stage companies engaged in life sciences research and development, commercialization and manufacturing in Massachusetts.
The credit is jointly administered by the Massachusetts Life Sciences Center (MLSC) and the Massachusetts Department of Revenue (DOR).
The deadline for 2020 applications is January 22, 2021 (application link below).
How much is the credit?
The program provides a taxpayer investor a credit of 20% of the qualifying investment (or 30% if the qualifying business is located in a Gateway Municipality).
Credits are available up to $50,000 in any one taxable year for qualifying investments of up to $125,000 per qualifying business per year and up to $250,000 in cumulative qualifying investments for each qualifying business.
Credit Eligibility: Taxpayer Investor
Investor must be an accredited investor as defined by the SEC.
Investor must not be the principal owner of the qualifying business or work in the qualifying business as a full-time professional activity.
Investors can only claim the tax credit after proof of eligibility from the MLSC has been obtained.
Proof of eligibility evidenced by:
Letter evidencing accredited investor status from CPA or lawyer
Certificate of good standing issued by Department of Revenue
Investor can be a non-resident of Massachusetts as long as they have Massachusetts sourced income subject to tax in the state.
Credit Eligibility: Qualifying Business
Principal place of business is in Massachusetts.
Has at least 50% of its employees located in the business’s principal place of business.
Employs 20 or fewer full-time employees at the time of the taxpayer investor’s initial qualifying investment in a business.
Has a federal tax identification number.
Has gross revenues equal to or less than $500,000 in the fiscal year prior to claiming eligibility.
Has a fully developed business plan that includes all appropriate long-term and short-term forecasts and contingencies of business operations, including research and development, profit, loss and cash flow projections and details of angel investor funding.
Credit Eligibility: Investment Criteria
Monetary investment that is at risk and is not secured or guaranteed.
Investment must be made from January 1, 2020 – December 31, 2020.
Investments must be used to support purposes such as:
Research and Development
Investment fund must come directly from angel investor’s own funds.
The MLSC is responsible for program administration/management, including application intake and review, awarding the credit and monitoring for compliance.
The DOR is responsible for administration of tax credits filed through individual’s annual MA tax return.
Any amount of credit allowed that exceeds a taxpayer investor’s tax due for a taxable year under M.G.L. c. 62 may be carried forward to any of the three subsequent taxable years.
The credit may be recaptured if the qualifying business ceases to have its principal place of business in the Commonwealth within the three taxable years following the taxable year of the investment.
The application is more burdensome on the qualifying business than on the taxpayer investor, so we recommend discussing this credit opportunity with the CEO/CFO of the qualifying business.
If you think you may be eligible for this credit or if you have any questions, we encourage you to contact your GW & Wade Counselor or you can reach us at firstname.lastname@example.org.
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