Solar power is growing rapidly around the country. In fact, over the past decade, solar power has had a steady annual growth of 33%. Businesses nationwide are jumping on board the sustainable energy bandwagon, hoping to reduce costs and do their part in helping the environment.
In order to encourage the commercial move to solar energy, the federal government is offering the Solar Investment Tax Credit. Business owners who are ready to make the move to solar power may be curious about the credit and whether they are eligible for it or not.
If you are a business owner, you will want to understand how the solar tax credit works, especially if you have not yet made the move to solar energy. The credit has the potential to be quite valuable for you, so you’ll want to understand the requirements for eligibility, as well as how to claim it.
Here’s what you need to know:
How Businesses Can Save Money on Their Energy Bills with Solar Power
As the price of electricity continues to soar, business owners across the United States are turning to solar energy. Not only are electricity costs rising, but solar power is becoming more and more affordable. It’s the perfect time for business owners to switch to solar to save money on their energy costs.
Solar is the number one source of renewable energy for businesses. When you have solar power installed on your commercial property, you are able to gain control of your energy, as well as lower your costs, and positively impact the environment.
Solar panels can provide a large portion of the energy needs of your business while saving you a significant amount in costs. You will be able to rely mainly on your solar energy, while greatly reducing your dependence on the large and expensive power grid. While your initial cost of having solar panels installed can be high, with the solar tax credit and time, you will end up saving a great deal on energy.
By d the power grid, you are also able to avoid the very costly peak-usage charges. During certain peak times, most electric utility companies charge higher rates for energy. With solar power, high usage charges are non-existent, ensuring that you can use the energy you need, when you need it, without high costs.
What is the Business Solar Tax Credit and How Does it Work?
In 2006, the federal government enacted the solar investment tax credit, giving residential and commercial property owners a tax credit for solar system installation. While the initial credit was 30%, it was reduced to 26% in 2020. This credit will be extended until the end of 2022, when it drops to a 22% credit for 2023, and eventually reduces to a 10% credit beginning in 2024.
The solar tax credit for businesses is a dollar-for-dollar credit toward the business’ income taxes. Without the credit, this money would go straight to the federal government. By having solar energy installed in your business, you are given a very valuable credit, saving you 26% on your tax bill.
The solar energy costs that can be included in the tax credit are the solar panels, costs of installation, circuit breakers, racking, energy storage, as well as taxes for equipment sales and usage.
Who is Eligible for the Tax Credit?
Commercial solar projects must meet certain qualifications to qualify for the solar investment tax credit. There are two methods that can be used to determine eligibility, including the physical work test and the commence construction/safe harbor clause.
The physical work test is the ability to prove that there was a significant amount of physical work over a specific time period.
With the commence construction/safe harbor clause, businesses may qualify for the credit in the tax year if the project was started before the end of the year. They will be given the credit for that year if they have already paid for five percent of the construction project.
There are also a handful of other eligibility requirements that businesses must meet in order to be granted the commercial solar tax credit. These requirements include:
- Being a commercial business that pays US federal income taxes.
- Being located in the United States or United States territories.
- The solar energy system needs to use equipment that is either new or previously used under limited circumstances.
- Not being used as energy to heat a swimming pool.
What are Some of the Benefits of the Business Solar Tax Credit?
Having solar installed for your business and receiving the solar tax credit is extremely valuable for your company.
With solar energy, you will be able to reduce the overall cost of energy for your business, as well as gain freedom from those ever-increasing utility pricing spikes. This is extremely important, as electricity costs only continue to rise, costing businesses more and more money.
Claiming the solar tax credit when you have your solar energy installed helps to reduce the cost of your installation and the equipment used. The ITC has multiple incentives, including government rebates, property tax exemptions, taxable state grants, loan guarantees, and depreciation deductions.
If your business has paid for five percent of the project cost, you can claim the tax credit and receive many benefits. You may also qualify for a tax credit if you charge your commercial energy storage system with renewable energy at least 75% of the time. Your credit amount is dependent on how often solar energy powers your battery storage system.
Large solar energy projects that don’t have an extensive tax liability may be able to receive tax equity financing for their system.
How to Apply for the Business Solar Tax Credit
If you qualify for the business solar tax credit, applying is simple. Just complete and attach IRS Form3468 to your tax return when you file your taxes. If you’re unsure how to properly fill out the form, you can find complete instructions and guidelines under “Instructions for Form3468” at www.irs.gov/pub/irs-pdf/i3468.pdf or speak to a tax professional.
How to Get Started with Your Commercial Solar Project
If you own a Florida business and you’re ready to get your commercial solar project started, you’ll want to contact SEM Power right away. The business solar tax credit will only be at a rate of 26% until the end of 2022, so it’s important to get your project started right away.
SEM Power is a top-notch solar company serving homes and businesses in Florida. We offer high-quality commercial solar installations, helping Florida businesses reduce their energy costs by 30%. SEM Power works hard to make your solar transition seamless, ensuring that your business can continue functioning at high capacity without disruption.
SEM Power wants to make sure you get the solar tax credit before it reduces in 2023. By paying just five percent of the cost of the project, you’ll be able to claim the full credit on your 2022 tax return. SEM Power will help you get started with commercial solar financing solutions so that you can get your project going right away.
Choose SEM Power for the most extensive engineering, procurement, and construction experience in Florida. Get your business going with renewable energy this year to lower your costs and get the full tax credit before it’s gone.
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