Faced with environmental toxins and air pollution, going green is more than a trend; it saves businesses money as well.
Eco-friendly initiatives may qualify your business for tax breaks in the form of credits and deductions, with credits offsetting dollar for dollar while deductions reduce taxable income reported to tax authorities.
Energy Efficiency Deduction
Tax deductions are legitimate write-offs that reduce taxable income at tax time, yet many SMBs don’t realize they can claim them for energy efficient upgrades in their business.
Energy efficient property may qualify for the Section 179D deduction (Codified in 26 U.S.C 179D). The IRS allows this deduction to be allocated directly to those primarily responsible for designing energy-efficient building property as opposed to its owner, should applicable.
This credit is non-refundable, meaning it can only reduce a taxpayer’s total tax liability to zero but not below this figure. It applies to solar, wind and geothermal equipment as well as fuel cell technology; SMBs that qualify can claim this credit against their business property whether installed new or retrofitted into existing space; this credit makes transitioning towards greener businesses more affordable – speak to one of our experts to learn more!
ENERGY STAR
The ENERGY STAR program offers more than just marketing hype; it provides real incentives that can save your business money on energy expenses. In particular, tax credits are available for investments made into renewable energies such as solar panels or biodiesel fuel production plants.
Energy Star works with an extensive network of service and product providers who can offer expert guidance on making green projects profitable for your company, including rebates and financial incentives available for investing in green technology.
The ENERGY STAR tax credit provides incentives for renewable energy systems such as solar electric, fuel cell, small wind and geothermal. Starting in 2020 and continuing until 2021, this credit accounts for 26% of system costs; then dropping gradually. Furthermore, this incentive may also cover energy-efficient lighting, building envelopes and energy management systems as well as battery storage technology; though its future may yet remain unclear.
179D Deduction
The 179D tax deduction provides businesses with a powerful incentive for investing in energy-efficient buildings, whether new construction or renovation, regardless of property type – including commercial, industrial and multifamily properties. Owners may deduct up to $5.00 per square foot of qualified equipment.
To qualify for this tax break, your project must meet certain energy efficiency grades depending on its location, climate zone, insulation levels, heat gains from lighting and appliances, window sizes, mechanical ventilation requirements and air tightness. A cost segregation analysis can help assess eligibility for this tax credit.
The original 179D program was passed in 2005 and extended several times since. While previously this incentive had a finite lifespan, the Inflation Reduction Act of 2022 removed this restriction and extended eligibility to include architects, engineers and design-build contractors – who can receive allocations on qualifying projects they design themselves.
Tax Credits
Being eco-friendly offers more advantages than simply reducing carbon emissions; it may also give your business a competitive edge and enhance customer loyalty, not to mention tax credits that may increase profitability even further.
Tax breaks provide dollar-for-dollar tax bill reductions and are one of the best ways to save money on green initiatives. They can help cover costs associated with new equipment or investment options that lower utility bills while offsetting costs associated with recycling programs and reforestation projects.
Credits may seem confusing and complex to track down, but they’re well worth your efforts in finding those relevant to your business. Cloud accounting solutions can assist by automatically categorizing and reporting on business accounting data into tax-ready reports for you. Furthermore, consulting a qualified tax professional before making claims may also prove invaluable.
