On January 1, 2015, Kentucky will launch one of the most aggressive angel tax credit programs in the country.  It’s a big development for the Northern Kentucky region in particular, which has made growing and supporting startups a key part of economic development strategy.  The primary goal of the program is to give startups access to capital to purchase materials, hire new employees, and build out the rest of their product–the angel tax credit will help them do so while giving investors an incentive to fund new business ventures.

Highlights of Kentucky’s Angel Tax Credit

  • Individuals who make qualified investments can claim a 40 percent state tax credit. The credit is 50 percent in counties struggling to add jobs and grow.
  • Out-of-state individuals who invest in Kentucky startups can sell their credit to Kentucky residents. Example: An Ohio investor who has a $4,000 Kentucky credit sells it to a Kentucky resident for $3,000. The Ohio investor gets cash, while the Kentucky resident reduces his or her tax bill and nets $1,000 on the deal.

While the program officially takes effect next January, efforts are being made to explore ways to let individuals make investments now and still access the credit.

Incentives for Kentucky Angel Investors

Good investors base their decisions on the quality of a company, not a tax credit, but the credit offers an additional incentive for investors who are interested in a startup but don’t live in Kentucky.  For example, Ohio is now behind Kentucky in investor incentives. Ohio’s Technology Investment Tax Credit, which gave investors a 25 percent credit for investing in individual companies, has been dormant since November 2012 because it hit a $45 million cap, making it harder for Ohio startups to attract additional capital from individual angels. This is exactly what makes Kentucky’s program a game-changer.

Read more about the program direct from the Kentucky State Legislature here.