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Smart Tax, Business & Planning Ideas from your Trusted Business Advisor |
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 Companies have many reasons for going green these days. Business owners might hope to save energy costs or develop products that appeal to environmentally conscious consumers. Employers may want to motivate employees or follow their own ideals regarding what’s best for the planet. Companies that go green can improve their reputation, expand their marketing potential, and appeal to concerned customers.Many consumers are eager to buy products and services from environmentally friendly companies. The Natural Marketing Institute has reported that over 63 million American consumers are classified as members of the “lifestyles of health and sustainability” (LOHAS). With LOHAS attitudes, customers may be willing to pay a premium for green products and services. Such consumers often prefer to do their buying from smaller companies, which may be perceived as more likely to be green than global giants. Going green may involve some initial costs. Fortunately, help is available. The federal government offers tax and financing incentives to companies that want to go green, and many states have their own programs. Greener pastures What does it mean to “go green”? That expression can cover a lot of territory, but a few common principles apply to most businesses. Any process, product, or service that saves natural resources or reuses these resources is considered green. For example, green companies often emphasize a reduction in paper usage to minimize the amount of trees that must be cut down. A company that emphasizes electronic communications instead of paperwork is likely to be perceived as environmentally friendly. Similarly, companies that actively pursue recycling strategies for their waste products may receive plaudits for those efforts. Green companies might use solar panels for some of their power, instead of fossil fuels. Companies that generate solar energy not only can use that energy themselves, they may be able to sell unused solar energy to the local power grid for an additional source of revenue. A sophisticated solar power system can be used to offset expensive peak rates and help control overall energy costs. In case of a spike in oil prices—or even a shortage of imported oil—solar power will continue to be available with no increase in cost. Flying high Some high-profile companies are going green. The National Football League’s Philadelphia Eagles reportedly will install about 2,500 solar panels, 80 20-foot-high wind turbines, and a generator that runs on a combination of natural gas and biodiesel. The team intends to make Lincoln Financial Field, where it plays its games, the first stadium capable of generating all of its own electricity. The Eagles have hired Solar Blue, an alternative energy company, for the installation. Not only will the Eagles have a predictable source of renewable energy, immune to spikes in prices, the team expects to immediately reduce its energy costs by almost 25%. Solar Blue can sell any excess energy it creates to the local utility companies, and the Eagles have generated new revenues by selling sponsorships to other companies eager to be linked with these green business practices.  Powerful tax credits Controlling energy costs may provide other financial benefits. Federal tax incentives exist for improvements that businesses make to rented or owned commercial buildings. If your company makes a 50% cut in energy costs by installing heating, cooling, ventilation, or internal lighting equipment, it can get a tax deduction of $1.80 a square foot. For smaller reductions in energy usage, your company might qualify for deductions of 60 cents per square foot. Your company also can receive tax credits of 10% or 30% by installing certain alternative energy sources for its own use. If your company does not owe enough tax to use the credits, it may qualify to take those credits as grants—that is, it can apply to the IRS for cash to help with the purchase price instead of receiving the tax credit. You cannot, however, apply for both. To get a 30% tax credit, a business can install fuel cells that generate electricity, solar equipment that generates electricity, solar equipment to illuminate a building using fiber optic distributed sunlight, or small wind turbines. (After 2016, solar equipment will generate only a 10% tax credit.) For the 10% tax credit, your company can install equipment for producing or distributing geothermal energy; very small combustion turbines; combined heat and power systems; or for periods ending before January 1, 2017, equipment that uses the ground or ground water for heating or cooling (geothermal heat pumps). Some of the equipment that can generate a 10% tax credit must be installed by 2016. Our office can help your company interpret these tax provisions and choose property that qualifies for the credits. Alternative approaches Alternative energy systems may receive other tax benefits. Purchasers of solar power systems, for example, may use five year accelerated depreciation for the project. Moreover, states such as California, Connecticut, and New Jersey require utilities to produce some of their energy from renewable sources, such as wind and solar systems. The utilities, in turn, can purchase the renewable energy they are required to provide from private companies. For example, New Jersey issues solar renewable energy certificates (SRECs) to solar system owners. Each time a system generates 1,000 kWh of electricity, an SREC is earned and placed in the customer’s electronic account. The SRECs can then be sold on the SREC tracking system, providing the system owner with revenues for up to 15 years. Further encouragement Government encouragement to green businesses also can take the form of money. The Energy Policy Act of 2005, for example, provides financial incentives such as loan guarantees and subsidies for developing alternative fuels. The Department of Agriculture backs a Small Business Innovation Research Program that awards from $80,000 to $250,000 to companies practicing environmentally friendly methods. The Environmental Protection Agency gives grants to small companies working to protect the environment. Additionally, some states dole out funds to small companies that are active in areas such as pollution prevention and recycling. As of this writing, the federal tax outlook for 2011 was undetermined. Our office can advise you on which current tax incentives for going green might apply to your business.  Socially Responsible Investing Gains Ground |
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Bangerter, Lund and Associates - Certified Public Accountants - Certified Public Accountants
February 2011 Newsletter
