Solar energy is one of the most widely available types of renewable energy, and the entire world is moving decisively in that direction. A solar energy system can be pricey to buy and set up. Every business owner must know some tax breaks and credits; this article will discuss tax credits and exemptions in detail.
As a business owner, you must understand your company’s local, state, and federal tax legislation. It will help you manage your bookkeeping and prevent costly fines. It’s a good idea to keep up with the tax laws that apply to your company, even if you’re working with a tax specialist. State and federal tax advantages and credits may apply to the company that saves you money over time.
What is a Tax Credit?
A tax credit reduces the amount of your taxable income. The tax credit is not a refund. However, if you applied for credit and paid more than you owed, you might receive a refund. Tax credits allow you to pay less in taxes, and you can use tax credits if you have paid the taxes you owe.
1. Solar Energy Tax Credit
The Federal Solar Tax Credit is a tax break that can offset a portion of the business’s investment in a solar PV system on federal income taxes. Businesses that have installed commercial solar systems in 2020 or 2021 were eligible for a 26% tax credit.
An extension was passed by Congress for the ITC in August 2022, bringing it to 30% for installations between 2022 and 2032. A 30% tax credit was also available for systems installed on or before December 31, 2019. The systems installed in 2033 and 2034 will drop to 26% and 22%, respectively. If Congress doesn’t extend the tax credit, it will end in 2035.
Business owners can apply for federal tax credits worth 26% of the cost of installing commercial solar panels. The deductions cover all costs associated with the solar panel purchase, installation, and related equipment that involve:
- The price of purchasing a commercial solar power system
- The price of installing the commercial solar panels, including developer costs, inspection fees, and permitting fees
- Batteries are charged using the power produced by the solar panels
- System balance components like inverters and wires
- Taxes estimated on all eligible costs’ sales and the expenses mentioned above
Only solar panels bought and installed between January 1, 2006, and December 31, 2023, are eligible for this tax credit. Congress initiated this strategy to drive people to adopt green energy, and the credit will expire in 2024. To correctly record solar as a business expense, remember to speak with your accountant or tax expert.
2. Energy-Efficiency Tax Credits
Many tax credits are unnoticed by business owners, costing them a lot of wasteful spending. Energy-efficiency tax credits are crucial organizations should investigate it. For companies using more eco-friendly or energy-efficient operations, there is a sophisticated system of tax incentives. Every company should speak with a professional to establish whether it qualifies.
3. Work Opportunity Tax Credit
Businesses can get a credit of up to $6,000 through the Work Opportunity Tax Credit for each qualified new hire. WOTC encourages companies to employ people from underrepresented groups, like ex-offenders, veterans, and people who use food stamps. The credit is limited and subject to minimum hour limits, worth 25% of qualified first-year pay.
4. Disaster Benefit and Employee Retention Tax Credit
Many firms would currently be eligible for two pandemic-related credits: the tax credit for employee retention, up to $7,000 per staff member per quarter (2021), and the tax credit for disaster benefit per IRSC 139.
Regardless of whether a company’s revenue has increased or decreased, it still needs to cover the rising costs of masks, cleaning supplies, and hand sanitizers to protect its staff and customers.
5. Small Employer Health Insurance Premiums Credit
The Credit for Small Employer Health Insurance Premiums is a highly advantageous tax credit that every small business owner should be aware of. This credit is quite simple to qualify for, even if there are some particular requirements; the only restriction is that you can only use the credit once every two years.
The Employee Retention Credit and the R&D Credit are among many other credits that organizations should look into for their gains.
6. Alternative Credit for Motor Vehicles
Applying for the Alternative Motor Vehicle Credit entitles companies with company-owned vehicles to credit up to $8,000 after buying alternative-fuel vehicles. Alternative vehicles that use hydrogen fuel-cell technology are eligible.
In these cars, the chemical energy of oxygen and hydrogen is transformed into electricity, which powers the motor without using regular gasoline. Your business vehicle’s model will determine the exact credit rate, which the original equipment manufacturer must also approve.
Please take note of the critical exception regarding the Alternative Motor Vehicle Credit, which occasionally confuses:
- Electric and hybrid vehicles are not eligible. This credit does not cover these two vehicle types because they both still utilize conventional fuels.
7. New Markets Credit
Real estate investments in low-income neighborhoods may be supported through the New Markets Credit, which you can apply through Form 8874. The New Markets Credit might assist in paying some of the costs associated with relocating your firm if you’re considering growing into more affordable places.
8. Equipment Depreciation
Since tax benefits are constantly changing, having a professional company accountant is crucial to keeping you informed. Depreciation of equipment purchased for a firm is one significant tax deduction. The majority of business owners need to utilize this more.
9. Tax Credit for Energy-Efficient Commercial Buildings
Commercial building lessees or owners may be eligible for an energy tax called the Energy Efficient Commercial Building Credit. Companies can obtain up to $1.80 per renovated square foot in credits. Using this credit, they can install or upgrade their facilities to have efficient and modern energy infrastructure, provided that the building’s overall energy and power usage rates are decreased by 50%.
These qualifying energy-efficient systems often include:
- Lighting systems or bulbs with a high energy efficiency
- High-performance HVAC units
- High-performance water heaters
10. R&D Tax Credit
The tax credit for R&D is the government’s financial incentive to promote innovation, production, and technical design. If businesses are aware of the beneficial tax incentives available, they can save thousands of dollars for operations they are already carrying out. You can ask a tax expert about the factors, requirements, and documentation needed to qualify.
11. Tax Credits for Business’ Energy Efficiency
The category of general company credits known as “business energy efficiency credits” is quite broad. This implies that the amount of new credits they have applied for and been approved by the IRS, in addition to any leftover or carried-forward credits from the prior tax year, determines their status.
These corporate energy efficiency tax credits give your organization some of the most comprehensive and approachable ways to lower its direct tax burden and save money every year.
The following are a few of the most popular tax credits for business energy efficiency:
- Credit for Refueling Alternative Fuel Vehicle: This credit enables owners of battery-powered vehicles to deduct up to $1,000, or 30% of the cost of installing a charging outlet, off their property taxes.
- Credit for the Production of Low-Sulfur Diesel Fuel: Enabling small firms to produce low-sulfur fuel to deduct a portion of their expenses from their yearly taxes. Similar to the Alcohol Fuels Credit.
- Qualified Electric Vehicle or Plug-in Electric Credit: Businesses are eligible to get a $7,500 nonrefundable tax credit for qualified plug-in electric or electric vehicles from certified, qualified manufacturers.
Contact Coldwell Solar About the Federal Solar Tax Credit
Tax breaks and exemptions are intended to provide financial relief to business owners. These benefits are available to business owners under a number of rules, but they are dependent on their general knowledge of and exposure to tax law.
We advise business owners to get tax credit exemptions that will benefit them over the long term. You can also ask a tax expert to offer this information and provide recommendations for the best course of action based on the nature of your business and industry.
To install commercial solar energy to cut down costs, contact Coldwell Solar for further information.
