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An Investor Tax Break Every Indiana Startup Should Know

Elevate Perspective

An Investor Tax Break Every Indiana Startup Should Know 

By Jacob Schpok, Vice President of Entrepreneurial Services & Entrepreneur-in-Residence

Overview of the Indiana Venture Capital Investment (VCI) Tax Credit 

Designed to increase access to capital for fast-growing Indiana companies, the Venture Capital Investment (VCI) Tax Credit program gives a nonrefundable tax credit to investors who provide qualified debt or equity capital to Qualified Indiana Businesses (QIB). The credit is calculated by multiplying the total qualified investment by the respective tax credit percentage (See chart below for tax credit rates effective January 1, 2022). As an example, an investor who invests $100K in a QIB can get a credit of $25K on their Indiana taxes. They also have five years to carry the tax credit forward; so, if their 2022 taxes are only $5K, they have a remaining $20K of credits to use between 2023-2026.  

Note: non-accredited investors (like those who might invest from crowdfunding websites) are still eligible for the tax incentive so long as they are investing in a QIB. QIBs have a lifetime credit cap of $1M of VCI tax credits available to them for their investors. 

How it Works 

First, the business looking to raise capital must apply and be approved as a QIB. Investors then must complete a Qualified Capital Investment (QCI) investor application for every new investment and must wait for it to be approved before making their investment. After the investment is made, proof of the investment must be shown to the Indiana Economic Development Corporation (IEDC) to be issued their tax credit certification letter, which is attached to the investor’s tax return to utilize the credits. 

Transferability 

The tax credit is also transferable. For example, a Michigan-based investor could obtain a VCI tax credit and sell the tax credit to an Indiana taxpayer. To do this, the IEDC needs to approve the sale, which includes reviewing the purchasing agreement, before money is exchanged. Minimum amount of tax credit that may be sold is $10K.  Multiple investments may not be pooled together to meet the minimum $10K tax credit amount. 

Effective January 1, 2022:
  • The tax credit rate is raised from 20% to:
    • 25% for Qualified Indiana Businesses, up to a $1M credit; and
    • 30% for minority- or women-owned Qualified Indiana Businesses, up to a $1.5M credit.
  • Qualified Indiana investment funds are eligible to use the incentive to raise qualified investment capital.
  • The annual cap allocation is raised from $12.5M/year to $20M/year, with no more than $7.5M/year awarded to investors in qualified Indiana investment funds.

The IEDC has established policies on what constitutes a minority business enterprise (MBE) and woman business enterprise (WBE) specific to this program and qualified investment funds. Click here to find more information on the VCI tax credit, including details on these policies.

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