03/ 24/ 2008
by Kay Bell
Environmentally conscious businesses can save more than the planet—they can save some money on their taxes. Here are four tax breaks that can save a company some green by going greener.
1. Support employee mass transit.
Employer-provided transit passes can encourage workers to commute via public transportation instead of clogging highways. Barbara Weltman, author of J.K. Lasser's Small Business Taxes 2008: Your Complete Guide to a Better Bottom Line (John Wiley & Sons, 2008) notes that businesses can support ecologically friendly commuting two ways:
- Setting up pretax accounts, similar to flexible spending accounts, where workers can put in pretax money they then use to pay for mass transit.
- Providing monthly transit passes, a tax-free fringe benefit, directly to employees.
In 2008, the dollar limit for both types of workplace mass transit payments is $115 per month per employee.
When a company pays for the passes, that cost is deductible. In addition, the business can save on employment taxes since these levies are not imposed on tax-free transit passes.
2. Use energy-efficient vehicles.
The alternative-fuel vehicle credit, known for its application to popular hybrid autos, applies to businesses the same as to individuals, says Weltman.
This tax break is especially valuable because it is a credit rather than a deduction. A deduction reduces taxable income, thereby lowering your tax bill. A tax credit, however, offers a dollar-for-dollar tax savings; if you owe $1,000 and have a $900 credit, your tax bill is reduced to just $100.
The credit amount is determined on a vehicle-by-vehicle basis. The IRS certifies specific hybrids, as well as vehicles that run on other alternative fuels, and maintains that list of autos and light trucks on its Web site.
Examine that list carefully, says Weltman, since a hybrid's credit is reduced once a manufacturer sells 60,000 of the fuel-efficient vehicles. There are no longer any credits for Toyotas or luxury Lexus hybrids, and credits for Honda hybrids began phasing out on Jan. 1.
3. Purchase energy-saving office equipment.
"This offers a twofold break," says Weltman. "You're saving on your energy costs because it takes less electricity to run things. The amount of savings varies by the type of equipment." The Energy Star Web site offers suggestions on energy-efficient business products in its "office equipment" section.
The other break is on your taxes. You can use Section 179 expensing to write off the equipment's cost in one tax year rather than depreciating it over several.
Even better, notes Weltman, under the recently-passed economic stimulus package, the expensing limit is increased up to $250,000 for 2008 purchases. Without the change, the 2008 expensing limit for Section 179 property would have been $128,000.
The point at which Section 179 expenses are phased out also was raised. When a company purchases a certain amount of equipment, the deduction is reduced dollar for dollar for each dollar over the limit. That phase-out limit is now $800,000 vs. the previous $510,000.
"So if you place equipment in service and the amount purchased doesn't exceed $800,000, you can claim up to $250,000 in costs," says Weltman, "Large companies aren't going to be taking advantage of this, but it is a great benefit for small businesses."
4. Upgrade your building's energy efficiency.
In addition to upgrading the environmental quality of equipment in your office, make the space itself more energy efficient.
Under the Energy Policy Act of 2005, business taxpayers can deduct the cost of energy-efficient property installed in commercial buildings. The deductible amount could be as much as $1.80 per square foot of building floor area for buildings that achieve a 50-percent energy savings target. Less comprehensive energy efforts still could qualify for a deduction of up to 60 cents per square foot of building floor area. Details are contained in IRS Notice 2006-52.
Converting to solar power also offers tax benefits. This tax break first appeared in the 2005 energy bill and was set to expire at the end of 2007, but has been extended through 2008.
Tax credits are available for qualified solar water heating and photovoltaic systems installed between Jan. 1, 2006, and Dec. 31, 2008. The credit is for 30 percent of the system's cost, up to $2,000. Details can be found on IRS Form 3468, Investment Tax Credit, as well as the Energy Star Web site.
Weltman, who posts a daily small business tip at her Web site, also reminds businesses to check state and, in some cases, local tax breaks. "Many states offer a wide range of incentives," she says. "They may have a credit or deduction. They may waive sales tax on certain purchases. There may be special financing available from local energy companies."
The clickable map at the Database for State Incentives for Renewables and Efficiencies, or DSIRE, provides information on state, local, utility and federal incentives that promote renewable energy and energy efficiency.
