New and Noteworthy

New and Noteworthy

The IRS Goes Green

Going green has become a popular trend in almost all facets of American life. Individual citizens are making a real effort to recycle, use public transportation, and drive energy efficient cars, while green businesses are constructing green buildings, installing energy-efficient heating and power generating system, using energy-efficient vehicles, using onsite renewable energy, and working on sustainable business development.

To encourage more businesses to get involved in these kinds of green initiatives, the federal government is offering a number of incentives, including energy tax credits and tax deductions for green thinking companies.

“Government support for environmentally conscious companies primarily comes in the form of tax credits,” says Barbara Allison, program director of Business Administration at South University — Montgomery.

As part of the Energy Policy Act of 2005, businesses are able to get support through tax credits and deductions helping them to go green with cost-effective initiatives.

According to the U.S. Department of Energy, a tax credit is a reduction in the amount a business has to pay in taxes. If a business is scheduled to owe $10,000, and it receives a $2,000 tax credit, the business will owe $8,000.

A tax deduction is a reduction in a business’s income that can be taxed. If a business earns $50,000 in taxable income, and it receives a $2,000 tax deduction, the business can only be taxed on $48,000 of their income.

Tax credits and deductions offered by the IRS include:

  • Businesses that improve the energy efficiency of existing commercial buildings, or build energy-efficient new buildings are eligible for tax deductions up to $1.80 per square foot. To receive the deduction, businesses need to be able to demonstrate that the building saves at least 50% on heating, cooling, ventilation, water heating, and interior lighting costs. Partial deductions of 60 cents can be granted for improvements in individual areas. These deductions are available for buildings constructed or improved between Jan. 1, 2006 and Dec. 31, 2013.
  • Businesses can receive up to a $12,000 tax credit for purchasing commercial heavy-duty hybrid vehicles. The size of the incentive is based on the size of the vehicle. These vehicles can be purchased from a number of IRS-approved manufacturers. This tax credit can only be used on vehicles placed into service from Jan. 1, 2006 to Dec. 31, 2009.
  • Businesses can earn a 10% investment tax credit for becoming a combined heat and energy property (CHP). A CHP system must be at least 60% efficient and produce at lease 20% of its useful energy as electricity and 20% of its useful energy as thermal energy. This tax credit can be used by businesses that install a CHP system between Oct. 4, 2008 and Dec. 31, 2016.
  • Businesses can also earn up to a 30% tax credit for the installation cost of onsite renewable energy sources like solar energy systems, small wind systems, and geothermal heat pumps. Businesses can receive tax credits for systems that were put into service between Jan. 1, 2006 and Dec. 31, 2016.
  • Businesses can also receive tax credit of the installation of sustainable energy sources like energy cells and microturbines. Credits are available for systems placed into service before Dec. 31, 2016.

Going green doesn’t happen overnight, and it takes efforts from everyone inside a business, from the executives and accountants to manufacturers and custodians, but with the help of government incentives the trend toward going green will continue.

Information for this story was collected from the Tax Incentives Assistance Project (TIAP). The TIAP is sponsored by a coalition of public interest nonprofit groups, government agencies, and other organizations in the energy efficiency field. It is designed to give consumers and businesses information they need to make use of the federal income tax incentives for energy efficient products and technologies passed by Congress as part of the Energy Policy Act of 2005 and subsequently amended several times.

Author: Brendan Purves

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