business man looking at mobile device at desk with tax forms pn laptop

If you’ve found your company growing fast and bringing on additional investors, this tax credit may be for you. 

Venture Capital Tax Credit Explained 

If you just started your company, it can be hard for investors to become interested in you. Most investors are hesitant to invest in businesses that are new because there is a higher risk that the company can go under. Time is the biggest issue with investors because if evidence doesn’t show that the companies are profitable and will last, it is considered a risk to invest. 

However, many states (such as the state of Indiana) have programs in place to help businesses get off the ground. Venture Capital Investment Tax Credits, also known as Venture Capital Tax Credit or VCITC, help fast-growing businesses by giving investors tax breaks when they decide to invest in these new companies. 

Understanding Tax Credit

In order to understand how Venture Capital works, you first should look into tax credits themselves. Investopedia has a straightforward explanation of what tax credits are. Tax Credits are credits any taxpayer can possibly own and can use for their taxes. If the taxpayer owes a certain amount to the government, the credit will be applied and subtracted from the original payment, making it cheaper. 

When the state attracts businesses to their state that investors can invest in, many of the investments are eligible for theVenture Capital Tax Credit, further incentivizing investors to invest in the new up-and-coming businesses like your own. The tax credit further reduces the risk for investors by incentivizing them to invest in early-stage companies. 

How Do VC Taxes Differ Between the States? 

No two states are the same when it comes to Venture Capital Tax Credits. Each state has different rules on business eligibility, how much money an investor can earn in tax credit, or even what the time frame looks like, such as how long you should invest in the company to be eligible for these tax credits. 

Below are the tax credit percentages you can earn in different states. Each state is different, and may even include a cap. For example, with Rhode Island, you can earn 50% off of your taxes, but it’s capped at a $100,000 maximum. Here is the rough idea for each state, including states that don’t have these programs available for investors. 

  • 50%+ off: Kentucky, Maine, Maryland, Oregon (Over 60% in VCITC), Rhode Island, Virginia, 
  • 45% off: North Dakota, 
  • Around 30% Off (Ranges between 35% and 30%): Arizona, Arkansas, Nebraska
  • Up to 25% off: Connecticut, Iowa, Louisiana, Minnesota, New Mexico, New York, North Carolina, Ohio, South Carolina, Wisconsin
  • 20% off: Indiana, Oklahoma
  • 10% off: New Jersey, 
  • Below 5%: Colorado (Colorado is as low as 3%)

Unfortunately, a few states do not have venture capital tax available. This includes Alabama, Alaska, California, Delaware, Florida, Georgia, Idaho, Illinois, Massachusetts, Minnesota, Mississippi, Montana, Nevada, New Hampshire, Pennsylvania, Tennessee, Texas, and Washington. 

Are these Venture Capital Programs Beneficial? 

In general, yes. Venture Capital Programs are beneficial to both parties- whether you are the investor or the business. As an investor, it’s beneficial for you to get credit for your taxes, as it can help reduce your risk while lowering tax liabilities. As a business, it is extremely beneficial to be in this program, as it opens the door for several investors to become interested in your new company. 

However, as you go state by state, and even by company, the answer can get a little more tricky. While some states have huge tax credits on venture capital programs, other states have a cap on how much credit you can earn in these investments. It’s important to do your research as an investor, and understand how each state differs. 

How Do I Know if My Company Qualifies for VCITC? 

The qualifications and regulations for Venture Capital differ throughout each state, and will especially differ if you decide to invest abroad. Check-in with your local government for resources on how to qualify for VCITC and the process necessary to do so.  Whether you believe your company qualifies for a VC Tax Credit, or you’re interested in using these programs as an investor, you’ll want to talk to a financial expert before you start this process. 

Intrepid Finance is dedicated to helping you and your company grow without capital constraints. If you are just starting your business, or your company has several years of successful growth, Intrepid can help your company grow to new heights.

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