Leveling Up: Illinois Expands Angel Tax Credits to Support Inclusive Startups

The state has expanded the Illinois Angel Investment Tax Credit program, which we last wrote about in 2019. Securing this tax credit could be very important to potential investors, especially during this challenging fundraising period.

Illinois now offers investors a 35% credit to their Illinois income tax liability for investments between $10,000 and $2 million in Set-Aside Qualified New Business Ventures (SAQNBVs). An SAQNVB is a startup that meets all of these requirements:

1. operates in an approved tech or innovation-based industry (see page 17 of this slide show provided by the State of Illinois);
2. has the potential for increasing jobs in Illinois or capital investment in Illinois (or both);
3. has a principal place of business in Illinois;
4. has operated in Illinois for less than ten consecutive years;
5. has fewer than 100 employees;
6. maintains these minimum employment thresholds for three years from the date of the last tax credit certificate issued for an investment:
   • at least 51% of the business’s employees must reside in Illinois, and
   • at least 75% of the new employee positions created by the business following receipt of the investment must reside in Illinois.
7. has raised less than $10 million in total (no more than $4 million in investments that qualified for program tax credits); and
8. meets at least one of these criteria:
   • majority-owned by women,
   • majority-owned by racial minorities,
   • majority-owned by persons with disabilities, or
   • headquartered in a rural county (≤ 250,000 people).

Startups that meet only 1 through 7 of the above requirements are called Qualified New Business Ventures (QNBVs). Those who invest in QNBVs can receive a credit of 25% to their Illinois income tax liability for their investments.

Illinois currently offers a total credit pool of $15 million per year to investors of QNBVs and SAQNBVs. Credits are allocated quarterly and distributed on a first-come, first-serve basis. Investors who invest earlier in the year have a higher chance of receiving the credit. If an investor invests late in a quarter and credit allocations have already been used up for that quarter, the investor’s application (even if an investment otherwise qualifies) might be rolled into the next quarter. In years with high demand, rollover credits have exhausted the total credit pool well before the year-end. To help investors secure their credit, businesses should encourage them to invest as soon as possible.

Contact us if you have additional questions or want legal advice for your business. We can help guide your business through the process of becoming a QNBV or SAQNBV.

Harris Lencz, an intern and rising 4^th-year student at the University of Chicago, provided substantial assistance researching, drafting, and editing this blog post

Categorised as: Fundraising