Going green results in a triple benefit: it helps the environment, it saves on fuel costs, and in specific situations covered here, it lowers your taxes. Here are some tax benefits that businesses can reap for making environmentally-friendly decisions.
Green Power Generation
Instead of using conventional energy sources for heating, cooling, and lighting, consider alternative energy sources. These include solar, wind, and geothermal heat. The IRS rewards businesses that make investments in these alternative energy sources by allowing a tax credit of up to 30% of the cost of eligible energy property; caps apply for certain types of energy improvements. Find a list of energy incentives created by the American Recovery and Reinvestment Act of 2009 from the IRS.
If you own your building, or are a commercial landlord, and bring energy efficiency in the building up to a certain level, you can deduct $1.80 per square foot as an energy-efficient commercial-buildings deduction. There must be at least a 50% reduction in energy usage. Less-ambitious energy efficiency can yield a tax deduction of 60¢ per square foot. The deduction relates to energy efficient items installed as part of:
• The interior lighting system
• The heating, cooling, ventilation, and hot water systems
• The building envelope (such as insulation in the walls and below the roof)
While the deduction generally is available to the building owner, a tenant may qualify for a partial deduction related to interior lighting.
The energy savings is measured against a base building defined by an industry standard (Standard 90.1-2001 of the American Society of Heating, Refrigerating, and Air Conditioning Engineers and the Illuminating Engineering Society of North America as in effect on April 2, 2003). To claim the deduction, a building owner must have the building certified as eligible by a field inspection conducted by a licensed engineer or contractor. This deduction is available for systems placed in service through December 31, 2013.
Instead of using gas-powered cars, trucks, and vans for your company, buying certain alternative fuel vehicles can result in a tax credit. There is a tax credit for:
• Hybrid vehicles, although many models no longer qualify. The amount of the credit varies with the make and model, and the IRS sets the credit amount. For example, the tax credit for buying a Ford Fusion Hybrid is $850 for purchases through March 31, 2010; no credit can be claimed for any Ford hybrid purchased after this date. Find a list of vehicles qualifying for the credit at FuelEconomy.gov.
• Electric-powered vehicles. There is a 10% credit for purchasing a vehicle powered by electricity. The credit is limited to $7,500 and applies to plug-in electric vehicles acquired before January 1, 2012 (a different credit applies for certain vehicles acquired before 2010). As yet, no vehicles have been certified as eligible for the credit, but GM expects to release the Chevy Volt later this year. Find details about the credit from the IRS.
State Tax Breaks
In addition to federal income tax incentives, you may qualify for an array of state-level tax breaks. These range from:
Property tax exemptions
• Rebates from utility companies for purchasing certain energy-efficient items (such as special heat pumps and water heaters)
• Loans programs to help finance energy improvements
• Sales tax exemptions on certain purchases
• Income tax deductions and/or credits.
Find state-level tax breaks through the Database of State Incentives for Renewables & Efficiency. Also, look into having free or low-cost energy audits from utility companies or other businesses that can help assess energy issues for your business.
Barbara Weltman is an attorney, author (with such titles as J.K. Lasser’s Small Business Taxes and The Complete Idiot's Guide to Starting a Home-Based Business), and trusted professional advocate for small businesses and entrepreneurs. She is also the publisher of Idea of the Day® and monthly e-newsletter Big Ideas for Small Business® at www.barbaraweltman.com, and host of Build Your Business radio. Follow her on Twitter: @BarbaraWeltman.