Leverage Virginia Business Credits for 2024/2025 Tax Planning

Overview of Virginia tax credits for businesses

Strategic tax planning often involves using tax credits to lower taxes. Virginia offers a variety of tax credits to promote state investment and business growth. As your business considers tax savings strategies for 2024/2025, we’ve highlighted several popular tax credits and new incentives for Virginia businesses.

Farm Wineries and Vineyards Tax Credit

This credit allows Virginia vineyards and Virginia Farm wineries to claim a credit for 25% of the cost of qualified capital expenditures related to establishing new Virginia farm wineries and vineyards and making improvements to existing Virginia farm wineries and vineyards. The credit is available to eligible taxpayers. Taxpayers wishing to claim this credit must apply annually by submitting Form FWV by April 1 of the year following the one in which expenditures were made. There is a $250,000 cap on the amount of credit available to all taxpayers. In the event that this limit is surpassed, the credits are allocated on a pro rata basis. If the credit amount allowed to a taxpayer exceeds the taxpayer’s liability, the remaining amount can be carried forward for 10 years. Taxpayers may not claim both the credit and a Federal deduction for the same expense.

Research and Development Credits

Eligible taxpayers incurring $5 million or less in qualifying research and development expenses during the year may qualify for this credit. The credit is equal to 15 or 20% or the first $300,000 in qualified expenses conducted in Virginia depending on the circumstances. Qualified expenses are those above a calculated base amount. In order to apply for the credit, Form RDC must be completed by September 1 of the year following the year in which the expenses were incurred. The credit must be certified by the Virginia Tax Credit Unit before it can be claimed. This credit is refundable. There is a $15.77 million dollar cap on the amount of credit available to taxpayers.

Eligible taxpayers with greater than $5 million dollars in qualifying Virginia based research and development expenses may apply for the Major Research and Development Tax Credit. The credit is equal to 10 percent of the difference between the current year’s qualifying expenses and 50 percent of the average amount of qualifying expenses for the three previous years. The credit claimed may not exceed 75% of the taxpayer’s liability. This is a nonrefundable credit, and any unused amount can be carried forward for 10 years. To apply for the credit, Form MRD must be submitted by September 1 of the year following the year in which expenses were incurred. The amount of credit available to all taxpayers is limited to $16 million per year.

Note: Both Research and Development credits sunset on January 1, 2025.

EZ Grant

Throughout the state of Virginia, there are zones designated as Enterprise Zones. These zones are created with the intent to promote investment and job creation by offering the Job Creation Grant and the Real Property Investment Grant to those who invest and create jobs within the zones. Learn more.

Qualified Equity and Subordinated Debt Investments Credit

This credit is available to eligible taxpayers who make qualified investments in qualified businesses and may be used against individual income and fiduciary income tax. The amount of credit is equivalent to 50% of the qualified investments and limited to $50,000 per taxpayer, not to exceed the taxpayer’s liability. Any unused credits can be carried forward for 15 years. “Qualified investments” are investments in equity or subordinated debt of businesses that meet criteria and have been granted qualification by the Virginia government. Equity investments must be held for at least three years after the year in which the credit is granted, and subordinated debt can’t require repayment of the principal for three years after the loan is issued to qualify for this credit. Receiving compensation for the investment disqualifies the taxpayer from receiving the credit. There is a total amount of $5 million in credits available to requesting taxpayers. If applications exceed this amount, the credit is prorated. To apply for this credit, investors must complete Form EDC and submit it by April 1 of the year following the year of the investment. Businesses wanting to become qualified businesses should complete Form QBA by December 31 of the year in which qualification is being requested; businesses must be qualified annually.

Other Credits

Historic Rehabilitation Credit

The Historic Rehabilitation Credit is available to eligible taxpayers that are rehabilitating a certified historic structure and have certain eligible expenses. Rehabilitation means that the structure is being rehabbed while maintaining its historic character in a way that complies with the Secretary of the Interior’s Standards for Rehabilitation. This credit is equivalent to 25% of the eligible expenses, up to $5 million. This is a non-refundable credit, and can be carried forward for 10 years. There is an application process for this credit on the DHR website.

Neighborhood Assistance Act Credit

This credit is available to be claimed by eligible taxpayers who donate cash, marketable securities, or other items or services to an approved Neighborhood Assistance Program (NAP) non-profit organization. This is a non-refundable credit equivalent to up to 65% of the donations’ value. The donation must be at least $500 per tax year and is limited to a maximum donation or $125,000 per tax year. Unused credit can be carried forward for five years. Depending on circumstances, there are minimum and maximum donation values. In order to apply for the credit, the taxpayer must reach out to the NAP organization and fill out a donor form.

Local Credits and Incentives

In addition to state credits, note that Virginia localities may also provide business incentives and credits.

For example, Henrico County recently approved a series of incentives. Qualifying businesses in Henrico County have access to incentives through Henrico Tomorrow which was developed in 2023-2024 by the Henrico Office Task Force, a cohort of local industry experts in both private and public sectors. Following is an overview of the available credits and incentives:

• Greater Henrico Technology Zone

Office buildings in Henrico may be eligible for building and permit fee waivers, custom incentives, and more. In addition, businesses can collaborate directly with the Henrico EDA to tailor financial solutions specific to their business needs.

• Office Reimagining Grant

  Grants of up to $25,000 are available for architectural services performed by a licensed architectural firm* related to redesign or reuse of an existing office building.

• Office Renovation Incentive Program
  

  This program offers reimbursement grants up to $500,000 for the renovation of qualifying office properties.

• Business, Professional, and Occupational License (BPOL) Exemption

In 2024, Henrico’s Board of Supervisors approved a Business, Professional, and Occupational License (BPOL) tax threshold increase to $1,000,000.

• Enhanced Reinvest: Commercial Investment Tax Abatement Program

Effective January 1, 2025, business may receive a partial tax exemption for up to 15 years on the value of an office building. Learn more about the Reinvest program.

Questions on state and local tax credits and incentives specific to your business? We can help. Contact your Opportunity Advisor or Email | Call: 804.747.0000