Are you a business owner looking to take advantage of the New Markets Tax Credit (NMTC)? If so, you’re in the right place! The NMTC is a powerful tool that can help eligible businesses access capital to grow their operations.
At Creative Advising, we are certified public accountants, tax strategists, and professional bookkeepers who specialize in helping businesses qualify for the NMTC. We understand the complexities of the program and can help your business navigate the process.
The NMTC is a federal tax credit that encourages private investment in low-income communities. It is designed to spur economic development and job creation in areas that have traditionally been overlooked by investors. The NMTC program provides a 39% tax credit to investors who make investments in eligible businesses in low-income communities.
In order to qualify for the NMTC, businesses must meet certain criteria. The business must be located in a low-income community or have a substantial portion of its activities located in a low-income community. Additionally, the business must meet the NMTC’s definition of a “qualified active low-income community business.” This includes businesses in the manufacturing, services, retail, and hospitality industries.
At Creative Advising, we can help you determine whether or not your business qualifies for the NMTC. We can also help you navigate the application process and ensure that you are taking full advantage of the program.
If you are interested in learning more about the NMTC and how it can benefit your business, contact Creative Advising today. We are here to help you make the most of this powerful program.
Eligibility Requirements
Businesses and organizations that seek to apply for the New Markets Tax Credit (NMTC) must meet specific eligibility requirements in order for their projects to be considered for the tax credit. Initially, the biggest obstacle to overcome in being eligible is having a sufficient portion of the project funds come from a Qualified Low-Income Community Investment. In order to be eligible, a project must also positively benefit a low-income community. Specifically, the project must reinvigorate failing businesses, create job opportunities, or give access to educational or health care resources in an underserved area.
In addition to meeting these criteria, applicants must be either an LLC, corporation, or limited partnership. Non-for-profit structures such as LLCs, corporations, and limited partnerships are eligible, though they must be certified as a community development entity if they seek to apply for the tax credit. The project eligibility criteria are slightly different for these entities depending on their particular situation.
Businesses that are interested in applying for the NMTCs should consult a financial advisor or tax strategist to help ensure they meet the criteria outlined by the New Markets Tax Credit Program. Working with a professional can help businesses and organizations maximize their potential to receive the tax credit.
Allocation Process
The New Markets Tax Credit (NMTC) program is a credit awarded by the federal government to qualified Community Development Entities (CDEs). A CDE is an institution or organization that seeks to promote economic development within a designated low-income community. The CDE’s goal is to bring businesses and other economic activity into these areas in need of additional investments.
The process of allocating the credits is highly competitive and involves a nomination process which can include local or state governments, philanthropic organizations and private investors. Once an organization is nominated by their state or local government, they will be evaluated according to several criteria such as their ability to provide impact and job creation. If successful, they will be awarded an allocation of NMTCs.
Any business interested in applying for the NMTC can qualify by meeting all of the eligibility requirements. These include: the business must be located in a Qualified Low-Income Community (QLIC) designated by the US government, at least 25% of the business’s operations must be located in the community or employ members of the community, the business needs to be involved in some type of commercial activity and must create jobs. In addition, the business must demonstrate an unmet financing need and be able to demonstrate that the NMTC will be used to finance a project that will benefit the low-income community in some way.
Businesses that meet the eligibility requirements and successfully win an allocation of NMTCs can use the credits to finance projects such as factory or commercial facility construction, job creation, job training or certain renovation projects. These credits can be an invaluable resource for businesses in communities that may not have access to traditional financing sources.
Qualified Low-Income Community Investments
The New Markets Tax Credit (NMTC) program is designed to stimulate economic development and job creation in low-income communities. NMTC investors provide capital to specialized certified Community Development Entities, such as financial institutions, venture capital funds, or economic development organizations. These organizations then invest the NMTC funding in businesses and real estate developments located within a low-income neighborhood. For qualified investments, investors receive credits against their Federal income tax of 39% of their original investment.
To qualify for the NMTC, a business must meet certain criteria and demonstrate its potential for improving a low-income community designated by the U.S. census. The business must be located in a low-income area, employ a certain number of individuals, and have a certain level of capital investment.
Qualifying businesses can be selected by showing that the proposed project will create jobs and/or improve the economic and social conditions of the census-designated low-income community. The tax credit encourages businesses to locate or remain in a low-income census tract and invest in infrastructure, facilities, programs, or services that are designed to improve the quality of life in the community.
In addition, investors in the NMTC program are rewarded with reductions in their Federal income tax of 39% of the investment made in qualified business operations. This tax credit is available for investments made during the 7-year period following the approval of the NMTC award. Furthermore, businesses may be eligible for other tax credits to complement the NMTC such as economic development incentives or state tax credits.
For businesses and investors that are considering taking part in the New Markets Tax Credit program, it’s important to work with experienced professionals who understand the complexities of the program. Creative Advising has the expertise to help businesses to qualify for the NMTC and maximize their benefit from the program.
Investor Tax Benefits
In order to attract investors to low-income community investments-especially those that are often overlooked due to risk-the New Markets Tax Credit provides tax incentives for investors, such as tax credits, which are calculated as a percentage of the loan amount made. This helps to bring in much-needed investments for businesses located in low-income communities or for businesses that are disproportionately owned or controlled by low-income community residents. Under the current rules, the maximum amount of credit an investor can receive is 39 percent over a seven-year period. Investing through the New Markets Tax Credit is attractive for both businesses and investors as it provides investors with the opportunity to receive both a regular tax deduction and a credit for the amount of their investment.
Additionally, businesses located in low-income communities can enroll and apply for the New Markets Tax Credit Program to attract investors to their business. In order to qualify for the credit, businesses must be located in lower-income communities, investments must be made to a qualified business, and the amount must be at least $100,000 (but usually much more). Furthermore, investors who are interested in investing in a lower-income community business through the New Markets Tax Credit must be certified or designated as a Community Development Entity (CDE). These CDEs are responsible for allocating the New Markets Tax Credit to eligible businesses. If approved, businesses will receive a delivery of certified credit for each dollar of their investment, which can then be used to reduce their taxable income.
Technical Assistance Resources
For businesses seeking to qualify for the New Markets Tax Credit, there are a variety of technical assistance resources available to help them. The federal government provides resources tailored to the needs of different types of businesses, including those focused on energy efficiency, expanding access to fresh foods, and social enterprise. These resources can provide guidance on the different requirements for qualification, as well as tips and tools for successful program implementation.
In addition, there are a number of non-profit organizations that provide technical assistance to businesses looking to participate in the NMTC program. These organizations provide a variety of services, such as case study review, financial modeling, and guidance on the application process, as well as one-on-one assistance for eligible businesses.
Finally, there are specialized NMTC advisors and consultants who specialize in the NMTC program. These advisors can provide businesses with the expertise needed to understand the qualifications and complexities of the program, as well as provide advice and assistance in the application process. In addition, these advisers can help businesses identify potential investors, and advise them on strategies to maximize the financial benefits of the NMTC program.
In order to qualify for the New Markets Tax Credit, businesses must meet a variety of complex requirements. While these requirements can be daunting, businesses can take comfort in the fact that there are a variety of technical assistance resources to help them throughout the process. From the federal government, to specialized non-profit organizations, to NMTC advisors and consultants, businesses have a wealth of resources at their disposal to help them navigate the qualification process and successfully implement the program.
“The information provided in this article should not be considered as professional tax advice. It is intended for informational purposes only and should not be relied upon as a substitute for consulting with a qualified tax professional or conducting thorough research on the latest tax laws and regulations applicable to your specific circumstances.
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