Tax Breaks for Environmentally Friendly Businesses

Federal and state governments now allow tax breaks for environmentally friendly businesses. Going green can be a profitable business strategy combined with the potential for increased loyalty from customers who care about sustainability.

Is your company considering a different mode of transportation? You may be considering solar energy for a commercial building. You can be environmentally conscious while saving money and receiving a tax credit from your business taxes for these projects. Here some of the tax dedutions and credits for business owners.

1.Tax Deduction for energy-efficient commercial structures

This tax break is especially advantageous to building owners. Other tenants, however, may be eligible. You may be able to deduct $0.30 to $1.80 per square foot for energy-efficient improvements to HVAC, hot water systems, lighting, and the building envelope (including walls, doors, windows, and the roof). The deduction amount is determined by the technology used and how much it reduces energy consumption.

You must be the owner or lessee of the commercial building to qualify.
To qualify for the deduction, you must obtain certification that the required energy savings of 50% will be met. It’s best to get this certification from a qualified engineer.

2.Tax Credit for “Green” Vehicles

Although electric vehicles (or EVs) account for a small percentage of cars on the road today, their popularity is growing continuously. You might be eligible for a federal tax credit if you purchase one.

Purchasers of qualifying plug-in electric drive motor vehicles, including passenger vehicles and light trucks, are eligible for a tax credit under the tax code. The credit is worth $2,500 plus an amount based on battery capacity that cannot exceed $5,000. As a result, the maximum credit for a qualifying EV is $7,500.

A qualifying vehicle is one with four wheels propelled by an electric motor. The battery must have a capacity of at least four kilowatt-hours and be rechargeable via an external source of electricity.

If your company buys qualified electric vehicles, it can claim the associated tax credit in the year they are purchased. To claim the credit, sole proprietorships, partnerships, and S corporations must file Form 8910, while C corporations must file Form 3800.

3. Solar Rooftop Tax Credit

Rooftop solar panels are available for those who want to generate clean energy. Since the Inflation Reduction Act was signed into law in August 2022, this tax credit has been available. With no cap, it provides a tax credit of 30% of the cost of installing rooftop solar.

The average 6-kilowatt solar installation costs around $19,000, so the solar tax credit is around $5,700. (The Inflation Reduction Act also includes a 30% tax credit for homeowners who need to upgrade their electrical panels to accommodate rooftop solar, as well as a 30% tax credit for installing battery storage.)

ENERGY STAR incentives and deductions

The Environmental Protection Agency’s ENERGY STAR, Opens in a new tab, an energy management initiative, is available to all businesses. The program focuses on lowering energy costs, waste, and greenhouse gas emissions.

ENERGY STAR assists businesses in replacing incandescent lighting with fluorescent or LED lighting. It also includes tools for tracking and monitoring energy and water consumption. Your energy provider may provide you with a free usage inspection and discounted supplies through this program.

4. Final Notes

There are many other credits also coming out in 2023. The most crucial thing to determine is whether you are eligible for the tax credits, which have been available since January 1, or the upfront discounts for low- and moderate-income Americans, which won’t be available until later in 2023.

To claim the energy investment tax credit, submit Form 3468 and your business tax return. Because this is a complicated form, save your receipts and hand them to your tax preparer.

Deductions are a little simpler. This deduction can be claimed on your business tax return in the “Other Deductions” section. Don’t forget that you’ll need a certification before or after you finish the upgrades.

If you take the tax credit route, it’s best to spread out the upgrades over several years because there is an annual limit on how many credits you can claim in a given year.
Begin by researching what is available in your state and industry, and then chart your course to a more sustainable and profitable business.