Finance

Why Tax Breaks for Going Green Works

Tax breaks for going green help achieve national and international environmental conservation goals, while presenting significant savings to individuals and businesses.

Tax breaks for going green work by incentivizing individuals and businesses to take the steps to sustainability. These government incentives make it easier for individuals to do their part, and for businesses to achieve the triple bottom line – social and environmental stewardship along with financial profitability. 

There are tax breaks for everything from sustainable energy installations to charitable donations. Read on to learn how to take advantage of tax breaks for going green.

Government Incentives to Meet Climate Goals

With the Paris Climate agreement, nearly all countries have committed to reducing greenhouse gas emissions. The US and China together make up 40% of the world’s greenhouse gas emission, making the US a key player in reducing global emissions. 

One way to do this is at a grassroots level by incentivizing individuals and businesses to go green. With profitable incentives, individuals and businesses can, in many cases, defray costs or even earn a profit from green installations and tax breaks. 

Renewable Energy Incentives

For renewable energy home energy systems, there are substantial federal tax incentives. The credit covers a percentage of the cost of solar electric and solar heating systems, small wind-energy properties, and geothermal heat pumps. Businesses can also benefit from these incentives. 

Wind facilities are eligible for tax credits from 12-30%, depending on the year and size of installation, as well as 1¢–2¢ per kilowatt-hour for the first 10 years of electricity generation for large installations.

For solar power, right now the percentage covered is:

  • 30% of the cost for installations in 2017-2019
  • 26% of the cost for installations in 2020
  • 22% of the cost for installations in 2021

The solar credit is expected to only be available through this year, so now is the time to take advantage of these renewable energy incentives. With the tax cut, your renewable energy installation could become profitable in even a few years.

Green Vehicle Incentives

There are also tax savings available for fuel-cell motor vehicles, plug-in electric vehicles, and biodiesel and renewable diesel vehicles. 

  • For fuel-cell motor vehicles, the car needs to have been purchased before 2017, and you have to be the original owner. 
  • For plug-in electric vehicles, the car must be a new electric vehicle purchased after December 31, 2009. 
  • For biodiesel and renewable diesel vehicles, the tax credit is available for the sale of use of biodiesel, renewable diesel, and a mixture of the two, as well as small agri-biodiesel products. 

For fuel cell motor vehicles and plug-in electric vehicles, tax credits range from $2,500 to $7,500 and are affected by the vehicle’s battery capacity and size. Biodiesel credits vary more widely, details are available here. 

Electronics Donations

It is also possible for both individuals and businesses to donate old electronics, including computers, cellphones, game consoles, and other electronic devices. To receive this tax incentive, you will need to donate to a qualifying non-profit or company. 

To take advantage of this tax dedication, be sure to keep a detailed record of the items and their fair market value. For large companies, this can both present a significant tax savings and an opportunity to support a non-profit or small company. 

Energy Star Incentives

There are tax incentives for both individuals and businesses for certain Energy Star products. These include everything from central air conditioning and furnaces, to windows, doors, skylights and roofs that are Energy Star certified. 

Even if an Energy Star product does not currently qualify for tax incentives, it will offer you energy cost savings and greater environmental sustainability. 

Savings for Bicycle or Mass Transit Commuters

There are also savings available for commuters using either mass transit or bicycle. 

  • For bicycle commuters, your employer can reimburse up to $20 per qualified bicycle commuting month tax-free.
  • For mass transit commuters using a transit pass, you may qualify for a $255 monthly tax savings. To take advantage of this option, opt into your employer’s commuter benefit program.  
  • For businesses, supporting your employees in these programs is one more way to demonstrate commitment to sustainability. 

Choose Recycled and Green Office Supplies

Most businesses can already deduct ordinary and necessary office supplies. To make it more environmentally friendly, choose recycled paper products, environmentally friendly cleaning products, composting trash bags, and natural or environmentally friendly breakroom supplies. 

How to Claim Tax Breaks for Going Green

Most of the tax credits for going green require a specific form to be included with your other tax credits or returns. You can find them listed in a database here. These vary depending on whether your small business is a sole proprietorship, LLC, S-Corporation, or partnership. 

Win-win Solutions

Tax breaks for going green help achieve national and international environmental conservation goals, while presenting significant savings to individuals and businesses. When taken together, these tax breaks present the opportunity to do more for the environment while reaping financial rewards. 

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