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Tax Incentives for Businesses Going "Green"

Did you know there are several ways to save your business money while being environmentally savvy? Whether your business is considering an electric vehicle or maybe a solar energy-powered building, there are tax credits and deductions for that! Check out all the ways you can save by going "green" below. 

Tax Credits and Deductions

Tax credits are often under-appreciated and under-utilized because they can be confusing. Simply put, a tax credit is a dollar-for-dollar reduction in your tax bill because the credit is offset against a tax liability. 

For example, if you spend $1,000 on an energy-efficiency project, your business tax is reduced by $1,000. 

Note: You can only get a tax credit for property or equipment you buy and put into service for a specific year. 

Another great option is tax deductions, although they only come into play after determining your gross income. No matter which option you choose, tax credits and tax deductions are both excellent methods of reducing your business taxes. 

"Green" Vehicle Tax Credit

Although electric vehicles (or EVs) are a small percentage of the cars on the road today, they're increasing in popularity all the time. And if you buy one, you may be eligible for a federal tax break.

The tax code provides a credit to purchasers of qualifying plug-in electric drive motor vehicles, including passenger vehicles and light trucks. The credit is equal to $2,500 plus an additional amount, based on battery capacity, that can't exceed $5,000. Therefore, the maximum credit allowed for a qualifying EV is $7,500.

The EV definition

For purposes of the tax credit, a qualifying vehicle is defined as one with four wheels that are propelled to a significant extent by an electric motor, which draws electricity from a battery. The battery must have a capacity of not less than four kilowatt-hours and be capable of being recharged from an external source of electricity.

The credit may not be available because of a per-manufacturer cumulative sales limitation. Specifically, it phases out over six quarters beginning when a manufacturer has sold at least 200,000 qualifying vehicles for use in the United States (determined on a cumulative basis for sales after December 31, 2009). For example, Tesla and General Motors vehicles are no longer eligible for the tax credit.

The IRS provides a list of qualifying vehicles on its website, and it recently added several eligible models. You can access the list here:

Here are some additional points about the plug-in electric vehicle tax credit:

  • It's allowed in the year you place the vehicle in service.
  • The vehicle must be new.
  • An eligible vehicle must be used predominantly in the U.S. and have a gross weight of less than 14,000 pounds.

Electric motorcycles

There's a separate 10% federal income tax credit for the purchase of qualifying electric two-wheeled vehicles manufactured primarily for use on public thoroughfares and capable of at least 45 miles per hour (in other words, electric-powered motorcycles). It can be worth up to $2,500. This electric motorcycle credit was recently extended to cover qualifying 2021 purchases.

  • These are only the basic rules. There may be additional incentives provided by your state. Contact us if you'd like to receive more information about the federal plug-in electric vehicle tax break.

"Green" Investment Tax Credits for Your Business

There are various ways your business can get a tax credit for energy-saving investments. It's required that these investments be in investment credit property that can be depreciated or amortized. 

Eligibility requirements for these tax credits: 

  • Your business must own or have built the equipment. 
  • The property must be placed into service (be operational) the year you take the credit.
  • The equipment must meet specific performance and quality standards. 

Another great option is Form 3468, which includes several additional investment tax credits. Note: Certain tax credits are being reduced to 22% for property construction beginning in 2021. These include: 

  • Solar illumination and solar energy property
  • Qualified fuel cell property
  • Qualified small wind energy property

Also, some other tax credits have been reduced from 30% to 26% for property construction beginning in 2020. These include:

  • For solar illumination and solar energy property
  • For qualified fuel cell property
  • For qualified small wind energy property

The Solar Investment Tax Credit

One of the most essential energy-saving tax credits offered to businesses is the solar investment tax credit. This credit gives a 30% tax credit for companies that install, develop, and/or finance solar energy property. 

How To Claim These Credits

Small businesses filing their business taxes as part of their personal tax return must: 

  • Find the credit application form for the specific tax credit and complete the form
  • Add this information to Form 3800, the General Tax Credit.
  • Then, add the information from Form 3800 to your tax return.

Please note: 

  • Partnerships and S corporations must file the form to get the tax credit (not Form 3800).
  • To get the energy investment tax credit, you must file an application Form 3468, along with your business tax return. This is a complicated form, so retain your receipts and give them to your Whittlesey advisor. 

Deductions are a little easier. This deduction can be included in the "Other Deductions" section of your business tax return. 

Note: you will need a certification, either before or after you complete the upgrades. 

Contact a Whittlesey advisor today to learn how to save your business money with "green" tax incentives. 

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