Back during the summer in July, the Mass Department of Revenue finally came up with procedures for angels investing in Massachusetts companies to take a tax credit towards their Massachusetts income taxes. To qualify, investors must be accredited, and they cannot be the founder or involved in the business day-to-day. The investor must be making an investment that is “at-risk” and is not guaranteed.
Companies that qualify for the credit must have 20 or fewer employees and have less than $500,000 in revenue. They must be located in Massachusetts and at least half the employees must work in the state overall. The companies should be engaged in life sciences, research and development (R&D), commercialization, and manufacturing. They must have a written business plan, forecasts, etc., and the investment should be used for capital improvements, plant equipment, R&D, and working capital. The businesses cannot be involved in retail, real estate, professional services, gaming, or financial services.
The credit is a 20% amount of the investment amount. Companies in a gateway municipality can offer a 30% credit. The amount of investment for the credit per business is limited to $125,000 per business per year and $250,000 of cumulative investment per business. The annual credit on all investments is capped at $50,000 per investor.
There is $500,000 in tax credits in total allocated by the state for 2020 to be given out. The application to begin the process has parts for both the investor and the business to complete. The credit can be claimed, once approved, in the year of the investment and if not used, can be carried forward for up to 3 years. Applications can found on the Mass Life Science Center website. Contact us at KN+S if you have any other questions on utilizing the credit.
Jeffrey Solomon, CPA, CVA, Managing Shareholder at Katz, Nannis + Solomon, P.C. If you have any questions or would like to speak with one of our tax professionals, please contact our office at 781-453-8700