At MEDOWS CPA, PLLC we work with the self-employed, freelancers and other business owners, many of whom may have an interest in green technology. Businesses using green energy have some specific federal taxation issues that our NYC CPA team would like to highlight and also encourage you to discuss with us in person. It is easy in the daily rush of running a business to overlook or postpone reviewing tax laws that could, in some cases, generate savings.

Green energy sources.  A number of federal tax incentives are available to encourage the production of green energy sources. There are income tax credits for the production of biodiesel, agri-diesel and renewable diesel fuels. These credits are available through December 31, 2013. Producers of cellulosic biofuel may be eligible for a tax credit for qualified fuel produced before 2014. Previously, there was an income tax credit for alcohol fuel but that credit is unavailable at present but could be revived in the future.

Energy efficiency.  The Tax Code promotes energy efficiency for residential homeowners and businesses. The tax incentives for businesses include a deduction for qualified commercial building energy efficiency expenses. These expenses include energy efficient lighting, heating, cooling, and ventilation systems. Energy efficient property generally must be placed in service before January 1, 2014.  There are also targeted tax credits for manufacturers of energy efficient appliances and builders of energy efficient new homes. These two credits have very specific requirements for these industries.

Green vehicles.  In recent years, Congress has created tax incentives to encourage consumers and businesses to purchase green vehicles. One incentive rewards purchasers of qualified plug-in electric motor vehicles with a tax credit that can reach $7,500. The amount of the credit, however, depends on how many electric vehicles the manufacturer had sold in the U.S. Qualified electric vehicles must be acquired for use or lease and not for resale and they must be used predominately in the U.S. There are also tax credits for the purchase of qualified light, medium and heavy-duty fuel cell vehicles. The amounts of the credits are based on the weight of the vehicles. Additionally, some alternative fuels may be exempt from federal fuel taxes if they are consumed in certain uses. For example, use on a farm or off-highway business use may qualify for the tax break from federal fuel taxes. Please contact our New York City tax experts for more details.

Environmental remediation.  Before 2012, there was a tax deduction for qualified environmental remediation expenses. A taxpayer could deduct, rather than capitalize, environmental remediation expenditures paid or incurred in connection with the abatement or control of hazardous substances located on property used in a trade or business or for the production of income. Although this tax deduction has expired, it is possible Congress could decide to bring it back in the future.

Green tax breaks.  Producers of electricity from wind, geothermal, solar, municipal solid waste and other green sources may qualify for the production tax credit (PTC). The PTC is among the most complex credits in the Tax Code and its complexity often discourages taxpayers from taking advantage of it. Generally, the PTC reaches 1.5 cents (2.3 cents adjusted for inflation) for each kilowatt hour of electricity sold by the taxpayer during the tax year that is produced from qualified resources at an eligible facility.  In some cases, however, the PTC may be lower. There are also special rules linking the PTC to the investment tax credit.

We have highlighted only some of the many federal tax laws that impact the green technology industry. Every business is unique with particular tax considerations. Please contact our NYC tax and accounting office so that we can set up a time to discuss your business in more detail.