U.S. House Small Business Committee Chairman Don Manzullo (R-IL) and Ways and Means Committee member Representative Earl Pomeroy (D-ND) introduced job-creating legislation that would provide a tax credit for those who invest in qualified American small businesses. The Access to Capital for Entrepreneurs (ACE) Act of 2006 (H.R. 5198) would create a 25-percent tax credit for accredited investors and certain partnerships (including angel investment pools if all are accredited investors) that invest cash or cash equivalents at an arm’s length in a qualified small business (as defined by the Small Business Act). An angel investment pool is a group of investors who come together to pursue common investments. To qualify for the tax credit, an investor would have to hold onto the investment for at least three years. The maximum amount eligible for the credit is $250,000 per investment and a total of $500,000 per qualified individual investor.
“This legislation will provide an opportunity for entrepreneurship, inventiveness, and the creation and growth of American small businesses, the job creators of our economy,” Chairman Manzullo said. “It will establish private sector incentives that will provide much-needed seed capital for a small business to grow and prosper beyond the start-up stage. By creating additional incentives, we expect more angels to invest more dollars and create more jobs.”
According to the Center for Venture Research, 227,000 angels invested more than $23 billion into new ventures last year, creating 198,000 new jobs, or 4 new jobs per angel investment. Twenty states currently offer some sort of income tax credit to encourage such private investments in early stage businesses, but this would be the first such credit at the federal level.
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