What if there was a way to guarantee a return on an investment? If your business operates in one of the 29 states currently offering Angel Investor Tax Credit Programs, it may be possible. 

These programs are popular avenues by which states incentivize innovation, job creation, and economic growth in their region and, in some instances, encourage the development of growing neighborhoods and minority-owned businesses.

Parameters of angel investor credit programs vary drastically from state to state, but the gist of it is this: If your business qualifies, the state will issue a credit to each of your investors for their fiscal support. 

We outline the details of New Jersey’s Angel Investor Tax Credit Program as an example of what to expect when looking to take advantage of the opportunity.  

Does my small business qualify for an angel investor tax credit program?

For qualifying businesses, investors receive a 20% tax credit when buying equity in New Jersey-based companies. 

The program is designed to stimulate growth in specific industries for small businesses and startups located in the state. Companies must employ fewer than 225 people at the time of the investment, and individual ownership of the company cannot exceed 80%. 

Additionally, 75% of all employees must reside in New Jersey, a qualifier assessed using W2s and payroll documentation. 

Companies applying for the program must specialize in a variety of technical fields which the state is looking to develop: 

  • Advanced Computing
  • Advanced Materials
  • Biotechnology
  • Carbon Footprint Reduction Technology
  • Electronic Devices
  • Information Technology
  • Life Sciences
  • Medical Devices
  • Mobile Communications
  • Renewable Energy Technology

While the startup must be based in the state, investors are not bound to the same geographical parameters. 

The return jumps to 25% when angel investors buy equity in certified women-owned and minority-owned businesses, as well as companies located in up-and-coming neighborhoods designated as “New Jersey Opportunity Zones.” 

Recommended resource: The Angel Capital Association “Find an Angel” Directory

A win-win for small businesses and investors 

In the state of New Jersey, an individual investing $100,000 in your company is guaranteed to see $20,000 come back to them — and quickly. It’s a significant financial perk that applies towards investments as high as $500,000 in the Garden State. 

The incentive gives a competitive advantage for businesses vying for a financial backer’s contributions. Knowing the rules in other states is a worthwhile strategy when pitching to potential investors. If you can demonstrate how your home state’s program is more advantageous than your competitor’s, you’re likely to emerge as a top contender. 

A tax credit program is a significant differentiating factor when investors are looking to buy into a new company. 

The first step in leveraging the benefits of an angel investor tax credit program is to review your state’s laws for the specific requirements. 

Thankfully, the Angel Capital Association (ACA) outlines all programs by state. Once you’ve determined eligibility, it’s time to begin the process of sharing the good news with your future investors. 

This article is based on an episode of the WTFAQ Podcast.

Get straightforward answers to all your startup questions from Wiss CPA Matthew Barbieri.


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