Massachusetts Tax Credit Available to Investors of Life Science Businesses
Last month, the Massachusetts Department of Revenue (DOR) issued guidance regarding the Angel Investor Tax Credit, which generally allows taxpayers who make a qualifying investment in a qualifying life science business to claim a personal income tax credit up to 20% of the qualifying investment.
Designed to encourage investments in early-stage life science, R&D and manufacturing businesses in Massachusetts, the regulation is the result of collaboration between the DOR, the Massachusetts Life Sciences Center (MLSC) and the Executive Office of Housing and Economic Development.
Qualifying Investments
Angel investments are permitted from “accredited” investors only and are limited to $125,000 in any one business in a single year or $250,000 total for any single business. The total credit for a taxpayer-investor may not exceed $50,000 in one taxable year.
Venture capital funds, hedge funds, and other commodity funds are not eligible for the angel investor tax credit.
Qualifying Businesses
Businesses eligible to receive angel investments must:
- Have a principal place of business in Massachusetts;
- Have gross revenues of less than $500,000;
- Employ fewer than 20 employees, 50% of whom must work at the principal place of business; and
- Maintain a full business plan including forecasts and additional financial information.
In addition to the general 20% credit, taxpayers that invest in “gateway municipality” companies are eligible for a higher credit of 30%. Gateway municipalities in Massachusetts include: Attleboro, Barnstable, Brockton, Chelsea, Chicopee, Everett, Fall River, Fitchburg, Haverhill, Holyoke, Lawrence, Leominster, Lowell, Lynn, Malden, Methuen, New Bedford, Peabody, Pittsfield, Quincy, Revere, Salem, Springfield, Taunton, Westfield and Worcester.
Interested investors can find the application on the MLSC’s website.
Material discussed in this communication is meant to provide general information and should not be acted on without obtaining professional advice tailored to you or your company’s individual and specific needs. Any tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used by any person or entity, for the purpose of (i) avoiding penalties that may be imposed on any taxpayer or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein. This information is for general guidance only and is not a substitute for professional advice.
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