Frequently Asked Questions
Here you'll find answers to some of the most frequently asked questions about the Angel Tax Credit program. Scroll down the page to view all the questions, or select from the links below to view specific sets of questions.
Here you'll find answers to some of the most frequently asked questions about the Angel Tax Credit program. Scroll down the page to view all the questions, or select from the links below to view specific sets of questions.
No. Qualified investors may be the residents of any state or any country, because the tax credit is refundable. No Minnesota tax liability is needed to receive the tax credit, though a Minnesota tax return must be filed. Residents of other countries, who do not have a Social Security Number and who wish to use our online system for investor certification or annual reporting, need to contact us to obtain an Angel Identification Number before attempting to create an online account.
No. A qualified investor must be a natural person. A qualified fund needs to be a pass-through entity, but only the fund's natural person members are eligible for the credit.
Not if the investor only invests in Qualified Small Businesses that exempt under Minn. Stat. 80A.46 clauses (13) or (14) or only invests in a security registered under Minn. Stat. 80A.50 (b).
Yes. Investors may use IRAs to fund their qualified investments, but are strongly urged to seek advice of tax counsel to determine the possible serious negative tax consequences of tapping the funds. Tax credits will be issued to investors in their capacities as natural persons.
An irrevocable trust is a separate legal entity, which is not a natural person. A revocable trust, on the other hand, is not a separate entity from the grantor. Investors should seek certification in their names, but may their use revocable trust assets to fund their qualified investments. Tax credits will be issued to the investor in their name.
Investors who, of the business in which the investment is made, are an officer (a person elected or appointed by the board to manage the business); or a principal (a person having authority to act on behalf of the business); or a 20% or more owner, individually or combined with family members, of the voting securities of the business, or a family member (siblings, spouse, ancestors and lineal descendants) of any of these persons.
A Qualified Investor seeking a credit allocation may not receive more than 50% of his or her gross income from the qualified small business in which the investment is being made (or be a family member of an individual who receives more than 50% of his or her gross income from the qualified small business in which the investment is being made).
Gross income is considered total income as determined by line 6 of IRS Form 1040.
An investor may use their revocable trust (though not an irrevocable trust) or their IRA as their investment vehicle, as long as a clear audit trail is provided showing the investor is the "owner" of that vehicle. Similarly, a sole member LLC can be used to make the investment, as long as evidence (such as the official member list created and submitted when the LLC is incorporated) is provided that the investor is the owner and sole member of the LLC. Other pass-through entities, such S or C corps, may not be used.
Yes.
No.
Three natural persons. Other additional fund members may be non-natural persons, but only the natural person members qualify for the credit.
No, not if the Qualified Fund only invests in Qualified Small Businesses exempt under Minn. Stat. 80A.46 clauses (13) or (14) or in a security registered under Minn. Stat. 80A.50 (b).
No, but it has to be headquartered in Minnesota.
It may be, but not necessarily. Mere formation of the legal entity with no other activity does not constitute "operations. Date of operations begins when a business is considered a development-stage business pursuant to SFAS 7 (e.g., raising capital, etc.).
Yes. Certification is valid until the end of the calendar year. Businesses that wish to participate in subsequent years need to apply for certification for that year.
No. It applies to the business and the business' unitary group.
Yes. All the business' employees count toward the maximum. Employees are those who receive W-2s.
For 2024 it is $54,600, which is equivalent to $26.25 per hour based on a 2,080 hour work year. The annual amount is reduced proportionally for part-time employees or for employees who worked part of the year.
For 2023 it is $52,500, which is equivalent to $25.24 per hour based on a 2,080 hour work year. The annual amount is reduced proportionally for part-time employees or for employees who worked part of the year.
Yes. Wages include cash compensation, as well as all non-mandatory benefits which are deductible for the employer.
Generally, yes. The wage minimums do not apply to business' executives, officers, board members, or any employees who own, control, or hold power to vote 20% or more of the business' outstanding securities. Nor do they apply to employees of other businesses that make up the unitary group. Interns have a different wage minimum. They need to be paid at least 175% of the federal minimum wage, which is $12.69 per hour.
Intern means a student of an accredited institution of higher education, or a former student who has graduated in the past six months from an accredited institution of higher education, who is employed by a qualified small business in a nonpermanent position for a duration of nine months or less that provides training and experience in the primary business activity of the business.
Download Sample Resolution One or Sample Resolution Two to use as models.
A minority-owned business is one which is (a) at least 50% owned by one or more minority group members, or, in the case of any publicly-owned business, at least 51% of the stock of which is owned by one or more minority group members, and (b) whose management and daily business operations are controlled by one or more minority group members. Minority group members are United States citizens who are Asian, Black, Hispanic, Pacific Islander, or Native American.
A women-owned business is one which is (a) at least 50% owned by one or more women, or, in the case of any publicly-owned business, at least 51% of the stock of which is owned by one or more women, and (b) whose management and daily business operations are controlled by one or more women.
A veteran-owned business is one which is (a) at least 50% owned by one or more veterans, or, in the case of any publicly-owned business, at least 51% of the stock of which is owned by one or more veterans, and (b) whose management and daily business operations are controlled by one or more veterans. A veteran is defined by Minn. Stat. 197.447.
Those areas outside the Twin Cities seven-county metropolitan area (Anoka, Carver, Dakota, Hennepin, Ramsey, Scott, Washington counties). A Greater Minnesota business is one that meets all these criteria:
No. For new and startup businesses we will accept pro forma statements for the most current period. They should be submitted with a copy of the most recent year's tax returns (if a startup in the current year, include a note that no returns were filed for the previous year).
The following amounts are included in determining total equity raised: common stock, preferred stock, additional paid in capital, convertible debt (both mandatorily and non-mandatorily convertible notes). Regular non-convertible debt is not considered equity.
A service contract is a contract that directly engages the time and effort of a contractor whose primary purpose is to perform an identifiable task or provide a service. Service contracts includes non-personnel, personnel, or professional services performed under written contract. The work to be performed under the contract is necessary to the entity's achievement of its primary business activity.
The minimum qualifying investment is $10,000 ($7,500 for women/minority/veteran-owned managed businesses, or businesses located in Greater Minnesota).
The maximum tax credit per year is $125,000 ($250,000 for married filing jointly). As the tax credit rate is 25%, this requires an investment of $500,000 ($1,000,000 for married filing jointly).
The minimum investment is $30,000.
Yes. Only cash investments qualify for the credit.
No. A qualified investment must be in cash.
No. A qualified investment must be in cash. Converting existing debt to equity is not an eligible investment.
Investments made in exchange for an equity interest: common stock, a partnership or membership interest, preferred stock, debt with mandatory conversion to equity, and a simple agreement for future equity (SAFE) with a mandatory conversion.
If convertible loans have a non-conditional, mandatory conversion requirement, they are considered equity. It is mandatory that such debt must convert, without condition, to equity within the three-year annual reporting requirement period for investors. For example, an investment that occurs in 2024 must convert on or before December 31, 2026. In addition, due to a 2013 law change restricting liquidity events, convertible notes cannot convert to equity within 180 days of the investment in order for the investment to be eligible for the Angel Tax Credit. Businesses are encouraged to submit a proposed convertible note to DEED via email at angel.credit@state.mn.us for review before the investment is made to ensure the note's clauses regarding these two provisions falls within the program's requirements.
If simple agreements for future equity (SAFE) have a non-conditional, mandatory conversion requirement, they are considered equity. It is mandatory that the SAFE must convert, without condition, to equity within the three-year annual reporting requirement period for the investors. For example, an investment that occurs in 2024 must convert on or before December 31, 2026. In addition, SAFEs cannot convert to equity within 180 days of the investment in order for the investment to be eligible for the Angel Tax Credit. Businesses are encouraged to submit a proposed SAFE to DEED via email at angel.credit@state.mn.us for review before the investment is made to ensure the note's clauses regarding these two provisions falls within the program's requirements.
A business' qualifications for certification are measured as of the date of application for certification. Certification is good for the calendar year in which it is granted. Investments made subsequent to certification have no bearing on the certification status already obtained for the calendar year. Such subsequent investments, however, do count toward the maximum if certification is sought in later calendar years.
A business can receive up to $4 million in investments that qualify for and receive tax credits under the program. This equals $1 million in credits and is a program lifetime maximum for the business.
An investor may use their revocable trust (though not an irrevocable trust) or their IRA as their investment vehicle, as long as a clear audit trail is provided showing the investor is the "owner" of that vehicle. Similarly, a sole member LLC can be used to make the investment, as long as evidence (such as the official member list created and submitted when the LLC is incorporated) is provided that the investor is the owner and sole member of the LLC. Other pass-through entities, such S or C corps, may not be used.
Investors need to file a Minnesota Individual Income Tax Return (Form M1) and claim the credit on Schedule M1REF, Business and Investment Credits. Investors who do not live in Minnesota may also need to file Schedule M1NR, Nonresidents/Part-Year Residents. Forms are available on the Minnesota Department of Revenue's website.
Foreign investors follow the same procedure outlined above. Those without a Social Security number or an individual taxpayer identification number may submit their return without such a number.
No. The tax credit certificates are issued directly from DEED to the Qualified Fund's investor members.
The Angel Tax Credit Program emails Angel Tax Credit Certificates in mid-February for investments made the previous year. If you don't receive yours, first check your Junk mailbox and then contact us at angel.credit@state.mn.us.
Only the Minnesota Department of Revenue can provide this information. Please see their Where's my Refund page for information to check the status of your refund.
The IRS has determined that the credit is taxable income. The Minnesota Department of Revenue will issue you a 1099-MISC in the amount of the credit and it needs to be reported on your federal 1040 as income. It is also income for Minnesota state income tax purposes and is considered Minnesota-sourced income.
A Credit Allocation Application may be submitted with the certification applications, but it will not be deemed filed until the related certification applications have all been approved.
Calendar days.
Investors are required to hold the investment for three years, with the year the investment is made counting as the first year no matter what date the actual investment occurred. Exceptions to this requirement include 1) the investment becomes worthless before the end of the three-year period, 2) 80% or more of the assets of the qualified small business are sold before the end of the three-year period, 3) the qualified small business is sold before the end of the three-year period, 4) the qualified small business’s common stock begins trading on a public exchange before the end of the three-year period, or 5) the investor is deceased.
Unless an exception to the three year holding period applies, investors are required to file an amended return with the Minnesota Department of Revenue for the year in which the credit was taken. This must be done within 30 days of the sale or transfer. The investor needs to repay the credit plus any interest owed when filing the amended return; failure to pay both the credit amount and the interest at that time will result in the imposition of a penalty by the Department of Revenue.