Tax Credits Can Lower the Tax Bill From Selling a Business
By Ben Zachariah, Director of Tax Credit Investments, Monarch Private Capital
The sale of a business can generate substantial tax liability. But by investing or purchasing transferable tax credits at a discount, the tax burden can be reduced.
Tax credits are created by governments to incentivize certain business activities that are deemed socially beneficial to communities. Historic preservation, low income housing and renewable energy are all activities that the Federal Government has promoted through the issuance of Federal Tax Credits. To further incentive these activities, many states have created tax credits that offset state taxes in a particular state (state income tax, insurance premium tax, franchise and excise tax). State tax credits are created by individual state’s legislature and vary state-to-state. Tax credits are a direct reduction of tax liability, not a deduction and are not a “loop hole” put together by creative accountants.
Georgia Tax Credits
In Georgia, there are film and entertainment tax credits, low income housing tax credits (LIHTC), and historic rehabilitation tax credits. Georgia’s film industry is estimated to have had a $6 billion impact on the economy in 2015, based on a multiplier.
For the Georgia Film, Television and Digital Entertainment tax credits, production companies may be awarded a tax credit up to 30 percent of dollars spent on production in Georgia. If a production company has little or no Georgia tax liability, it can directly transfer or sell its tax credits to another entity or individual. These credits are purchased through a transfer agreement between buyer and seller where price and other matters are stipulated. A transfer tax form, IT TRANS, is filed with the Georgia Department of Revenue to record the transfer. Monarch Private Capital (MPC) acts as a broker between the film company and the buyer. MPC vets all film credit projects to make sure the studio or production company’s paperwork is in order and all certifications have been met and received from the state (DOR). For Georgia film credits, the buyer can purchase credits in the current year, but use them in prior years, as far back at the year the credit was generated.
The Georgia Low Income Housing Tax Credit Program was established in 2000 and allocates state tax credits to investors and developers of qualified low-income housing developments who reserve all or a portion of their units for low-income tenants. MPC invests in partnerships with project developers to receive the tax credits generated by the low-income housing developments. Thereafter, MPC creates a fund that contains the tax credits. Investors invest in the fund to receive an allocation of GA low income housing tax credits. The credits are reported through a K-1 (partnership tax form). The state tracks all developments earning LIHTCs and which are tracked from developer, through the fund, up to the end user/investor. For LIHTC, the investor must invest in the current tax year to receive the credit. If the taxpayer has excess credits, they may carry them forward for three additional tax years.
Federal investment tax credits are offered by the United States government to promote specific types of developments in various fields. Federal tax credits are generally suited for corporations that carry an annual income tax liability of $500,000 or more. Corporations investing in federal tax credits will typically see a substantial internal rate of return on their investment. Additionally, individuals with substantial passive income may also benefit from federal tax credits.
Our team at MPC works with historic rehabilitation, Federal Solar Investment Tax Credit (ITC) and affordable housing federal tax credits. In some cases, the provisions may mirror state regulations, in some cases, not.
In addition to the tax benefits of tax credits, many such investments offer opportunities for positive public relations. When investing in solar tax credits, you help reduce the negative impacts on the environment through the creation of clean power. When you invest in historic tax credits, you restore a lifelong part of the community to vitality and create a new future for historically significant buildings. When you invest in affordable housing credits, you prove to your community that you care about their well-being by creating affordable quality homes. When you invest in film credits you are supporting the arts and entertainment industry which creates thousands of new jobs and boost, the local economy.
Contact us to learn more about how to benefit and make an impact today.
Ben Zachariah is a GABB affiliate and serves as Director of Tax Credit Investments for Monarch Private Capital. Zachariah helps businesses and individuals identify, underwrite, and invest in federal and state tax credit investment opportunities, which afford them the ability to effectively reach and optimize their tax and wealth planning goals. Zachariah works with wealth managers, RIAs, CPAs, attorneys, and advisors to assist them in driving value to their client’s overall financial plans and strategy. Zachariah is a licensed CPA in the state of GA.
Zachariah specifically focuses on individuals with liquidity events, real estate investors, hedge fund managers, private equity managers, high-income earners in general ($1M plus of net taxable income), banks, profitable portfolio companies with cash flow, financial institutions and trust companies, insurance companies, and corporations with federal and multistate federal tax liabilities.
Zachariah has facilitated the placement of over $70M federal and state credits since joining the firm in 2016.