Let's look at the math and see why this one is so important. If you are an accredited investor in South Carolina who puts $100,000 into a qualified business like NannyPod for example, you could potentially get a 35% tax credit.
If a company is offering a convertible note, with a minimum valuation of $2M and a maximum valuation of $5M, then the $100,000 that you put in could potentially convert to between 5% and 2% equity ownership. However, due to the 35% tax credit, you actually realize this ownership for an investment cost of $65,000.
$100,000 x 35% = $35,000
$100,000 - $35,000 = $65,000
Hence, your investment of $100,000, really turns out to be an investment of $65,000.
Now let's look at what happens when the company is sold, and you get a return on your investment. If the company you invested in does well, and has a successful exit strategy of say $50M in 5-6 years time, then your worst case scenario 2% ownership is now worth $1M.
If we calculate the return on $100K growing to $1M, then you made 1000%. However, if we calculate the return on $65K invested due to receiving the $35K tax credit, then you actually made 1538%, an additional 538% more.
This clearly illustrates why maximizing tax credits can be of huge benefit, especially to angel investors in the State of SC.
The State of SC Angel Investor Tax Credit Application form can be found here.
The information in this article is not intended as tax or legal advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek tax or legal advice from an independent professional advisor. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. This material was written and prepared by Hedges Wealth Management.
Connect and Read More About Us
Hedges Wealth Management LLC - A Registered Investment Adviser
Hedges Insurance Agency LLC
Tax, Financial Planning, Investments and Insurance Advisors
310 Seaport Lane #2121 | Mt Pleasant | SC 29464
T
If you are looking for more information on any subject in this Blog, please Contact Us directly electronically or via phone. Thank you.
