Posted by KLSM CPA Firm PLLC

Energy Tax Credits Small Businesses Should be Aware of

Energy Tax Credits Small Businesses Should be Aware of

Energy tax credits for businesses are classified as a dollar to dollar deduction on a commercial organization's energy bills. It is usually done at the federal and state level. The aim is to encourage businesses to change their power, efficiency, energy, operational practices, and material sourcing from resource incentive forms to greener ones. 

Provided small businesses are using any of these energy-related devices, they might qualify for some government tax credit. 

  • Wind turbine

  • Fuel cells

  • Geothermal system

  • Combined heat and power system

  • Investing in the preservation of the environment 

A few of the most common energy tax credits available for businesses have to do with the source of fuel in charge of their technology. Here are some:

  • Solar energy credit

  • Fuel efficiency credits 

  • Renewable energy credits

  • Electric vehicles

  • Biofuel credits 

There are many advantages a business will derive when they convert to an energy tax credit qualifying sources, which is more than the lowered taxes.


Energy Tax Credits Businesses can claim 

  1. Alcohol Fuel Credit

Businesses that are working with or that deal with the manufacture of alternative fuels qualify for a particular credit that has to do with the expenses associated with fuel production. 

For instance, a business centered on manufacturing alcohol-based fuel products for the masses like ethanol might be eligible for such depending on the cost of alcohol with which the ethanol was produced. 

This credit is nonrefundable and is directed to encourage green fuelings like cell-powered vehicle research, HVAC infrastructure, and alternative fuel transportation.

  1. Federal Investment Tax Credit

One of the most considerable energy credits that small businesses can claim is the federal investment tax credit. It is popularly known as federal solar tax credit since it is directed exclusively to installing and using solar panels on commercial and residential properties. 

With these specific tax credits, firms that install solar panels will get a tax credit equivalent to 26% of the entire cost – the cost of the panel with the installation. 

The federal investment tax credit, however, is time-sensitive as it comes on a sliding percentage scale. As a result, the tax credits reduce depending on the time of purchasing and installing the solar panels. 

  1. Accelerated Depreciation

Series of large, small, and mid-scale businesses can enjoy accelerated depreciation as it is one of the most broad tax credits available. 

The idea behind accelerated depreciation is recognizing, encouraging, and supporting businesses that deduct some assets' costs even before such assets are depreciating. 

As a result, this credit is Uncle Sam's way of enabling small businesses to write off up to 85% of their investment in green assets and energy-efficient investment in a tax year. With this depreciation timeline, firms can afford the initial cost of buying other technologies like solar panels for their use. 

  1. Rehabilitation, Reforestation and Energy Credit 

From the name, the idea behind this credit is to help businesses that invest in causes that preserve the environment. A company might not necessarily partake in such environmental activities themselves. Such corporations, however, might invest in resources as a form of support for other firms in charge of this. 

Real estate renovations and restoration are part of such credits. For instance, a firm that purchased a new building to serve as its headquarter might receive a rehabilitation credit relative to the cost of restoring the property. Small businesses with a construction project of new buildings, however, are not eligible for such credit. 

Also, businesses that take part in investing in such a cause might not have to adjust their energy efficiencies, electricity source, or fuel before they qualify for the green tax credit. Simply supporting such cause allows a business to be eligible for up to 10% investment expenditure deduction even though the threshold is $10,000 every year. 


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