Friday, January 29, 2010

B Corporations and the New Economy

My company, TriLibrium, is a certified B-Corporation. I believe B-Corp certification to be the current gold standard for firms dedicated to doing well by doing good.

Yesterday I had the opportunity to participate in a "State of the B Community" update. The B Corporation community is maturing and expanding. There are now more than 250 certified B-Corps total. The community has expanded to Canada and just this week, the first one will appear in Europe. On January 1st, B Labs released the new benchmarking tool, Version 2.0.

Whether or not you want to pursue B-Corporation certification, I highly recommend using the B Corporation survey to benchmark your environmental and social performance. This is a free service that will help you assess where you stand, and how you might improve. Getting a baseline benchmark is critical for performance improvement and to measure and report on your progress.

Because it is worth sharing, here is the B Corporation Member Declaration:

Declaration of Interdependence

We envision a new sector of the economy which harnesses the power of private enterprise to create public benefit. This sector is comprised of a new type of corporation – the B Corporation™ – which is purpose-driven and creates benefit for all stakeholders, not just shareholders.

As members of this emerging sector and as entrepreneurs and investors in B Corporations™,
We hold these truths to be self-evident:
  • That we must be the change we seek in the world;
  • That all business ought to be conducted as if people and place mattered;
  • That, through their products, practices, and profits, businesses should aspire to do no harm and benefit all.
To do so, requires that we act with the understanding that we are each dependent upon another and thus responsible for each other and future generations.

Wednesday, January 27, 2010

Other Green Incentives for Business

In my last blog post I covered IRC Sec. 179D and the deduction for energy efficient commercial buildings.

Today, I'm going to highlight some of the other energy and efficiency related incentives that you might want to know about. Due to the complexity and the narrow applicability of many of these tax incentives, I'm just going to list them out today and I'll decide later whether to delve deeper into any of them.

  1. Accelerated Depreciation for Qualified Smart Electric Meter and Qualified Smart Electric Grid System (IRC Sec. 168(e)(3)(D)(iii) and (iv));
  2. Qualifying Advanced Energy Project Credit (IRC Sec. 48C);
  3. Energy Efficient Appliance Credit (IRC Sec. 45M);
  4. Credit for Carbon Dioxide Sequestration (IRC Sec. 45Q);
  5. Qualifying Advanced Coal Project Credit (IRC Sec. 48A);
  6. Qualifying Gasification Project Credit (IRC Sec. 48B);
  7. Alcohol Fuels Credit (IRC Sec. 40);
  8. Enhanced Oil Recovery Credit (IRC Sec. 43);
  9. Renewable Electricity Production Credit (IRC Sec. 45);
  10. Biodiesel Fuels Credit (IRC Sec. 40A);
  11. Low Sulfur Diesel Fuel Production Credit (IRC Sec. 45H)
  12. Advanced Nuclear Power Facility Production Credit (IRC Sec. 45J); and
  13. Nonconventional Source Production Credit (IRC Sec. 45K).

Tuesday, January 26, 2010

Green Tax Incentives for Commercial Buildings

The Energy Efficient Commercial Building Deduction is allowed under IRC Sec. 179D. This code section was originally added by the Energy Policy Act of 2005 and was extended through 2008 legislation. Section 179D now applies to properties placed in service after December 31, 2008 and before January 1, 2014. Unlike most of the incentives I've covered in earlier blog posts, this incentive is based on a deduction and not a credit.

Section 179D allows an immediate deduction for the cost of energy efficient building property placed in service during the year. The maximum amount of the deduction is $1.80 per square foot on a lifetime basis and is available for energy efficient building property place in service after 2005 and before 2014. The maximum deduction in any taxable year would be equal to $1.80 x square footage of the building less the aggregate amount of Sec. 179D deductions for all prior tax years.

Note that this section applies to both new construction and renovations.

The maximum 179D deduction of $1.80 per square foot is actually comprised of three separate components:
  1. Building envelope
  2. Lighting
  3. HVAC
Each component is worth a maximum $0.60 per square foot deduction.

To qualify for these deductions, commercial building performance must exceed baseline standards. Any deduction allowed under 179D reduces the depreciable basis of the property.

The standards for each of these three building components is far too detailed and specific to delve into here but let me point out a couple things to be aware of.

First, because Sec. 179D deductions are based on square footage - the bigger the building, the larger the deduction. These deductions can be huge for distribution centers, parking garages and other facilities with large footprints. As a rule of thumb, I've heard a building needs to be greater than 50,000 sf before these provisions are cost effective due to the documentation and increased costs necessary to qualify for the deduction.

I've also heard that the construction cost needs to be north of $1 million before deciding whether to pursue these deductions because the cost of proving performance will exceed the deduction on smaller projects.

This deduction is available to either the building owner or the tenant, depending on who incurred the costs.

In the case of a government-owned building, the Sec. 179D deduction is awarded to the primary designer should the building qualify based on performance. An architect, engineer, contractor or energy consultant who creates the technical specifications for a new building or an addition to an existing building which incorporates the necessary performance standards may qualify for this deduction.

A government-owned building is any publicly owned building such as a prison, school, water treatment facility, court house, military facility, etc., etc. Designers working on such projects can qualify for some huge deductions under this code section.

Friday, January 22, 2010

Green Tax Incentives for Travel (Part II)

In Part I of this post I focused on "Green" tax incentives related to travel/transportation, primarily for the individual. As mentioned in that blog post, the following tax credits are available for both individuals and businesses:
  • New Qualified Plug-in Electric Drive Motor Vehicles Credit (IRC Sec.30D)
  • Certain Plug-in Electric Vehicles Credit (IRC Sec. 30)
  • Alternative Motor Vehicle Credit (IRC Sec. 30B)
The calculation of the credits, certification requirements, and all of the rules are the same for business as individuals with a few exceptions.

First, there is no rule allowing the business portion of any of the credits to apply against individual AMT. Second, business credits carry forward if unused while individual credits fall into the "use them or lose them" category.

Two additional "green" incentives for business are related to fringe benefits for employee commuting:
  1. Transit and Vanpool Transportation Fringe Benefits (IRC Sec. 132(f)(2))
  2. Bicycle Commuters Fringe Benefit (IRC Sec. 132(f))
Under the tax law, an employee may exclude qualified transportation fringe benefits from gross income and wages for payroll tax purposes while the employer is ably to fully deduct these fringe benefits as ordinary and necessary business expenses. The transportation fringes include parking, transit passes, vanpool benefits, and qualified bicycle commuting reimbursements.

Prior to 2009, up to $230 per month of parking benefits and up to $120 per month of transit and vanpool benefits were excludable from income. The Recovery Act (ARRA) increased the monthly exclusion for vanpool and transit benefits to the same $230 per month available for parking benefits.

The Bicycle Commuters Fringe Benefit allows an employer to reimburse a bike commuter up to $20 per month for reasonable expenses incurred by the employee during the calendar year for the purchase, improvements, repair, and storage of a bicycle that is used regularly for a substantial portion of the commute between an employees home and workplace.

Employees are not allowed to exclude from income the bicycle commuting fringe benefit for any month that another transportation benefit is received by the employee. Employers have until March 31 to reimburse employees for expenses incurred int he prior calendar year. Accordingly, you could still provide this tax advantaged fringe benefit to your 2009 bike commuters.

Wednesday, January 20, 2010

Tax Filing Deadlines at the end of the month

Just a quick reminder that some filing deadlines are looming. From the IRS website, here is what is required to be mailed by February 1st:

Furnish Forms 1099 and W-2. Furnish each employee a completed Form W-2, Wage and Tax Statement. Furnish each other payee a completed Form 1099 (for example, Form 1099-MISC, Miscellaneous Income).

File Form 941 or Form 944. File Form 941, Employer's QUARTERLY Federal Tax Return, for the fourth quarter of the previous calendar year and deposit any undeposited income, social security, and Medicare taxes. You may pay these taxes with Form 941 if your total tax liability for the quarter is less than $2,500. File Form 944, Employer's ANNUAL Federal Tax Return, for the previous calendar year instead of Form 941 if the IRS has notified you in writing to file Form 944 and pay any undeposited income, social security, and Medicare taxes. You may pay these taxes with Form 944 if your total tax liability for the year is less than $2,500. For additional rules on when you can pay your taxes with your return, seePayment with return on page 20. If you timely deposited all taxes when due, you have 10 additional calendar days from the due date above to file the appropriate return.

File Form 940. File Form 940, Employer's Annual Federal Unemployment (FUTA) Tax Return. However, if you deposited all of the FUTA tax when due, you have 10 additional calendar days to file.

File Form 945. File Form 945, Annual Return of Withheld Federal Income Tax, to report any nonpayroll income tax withheld in 2008. If you deposited all taxes when due, you have 10 additional calendar days to file. See Nonpayroll Income Tax Withholding on page 4 for more information.

Friday, January 15, 2010

Green Tax Incentives for Travel (Part I)

I covered federal tax incentives for going green in the home here and here. Now I'm going to cover green tax incentives associated with travel.

For individuals, the following credits are available:
  • New Qualified Plug-in Electric Drive Motor Vehicles Credit (IRC Sec. 30D)
  • Certain Plug-in Electric Vehicles Credit (IRC Sec. 30)
  • Alternative Motor Vehicle Credit (IRC Sec. 30B)
  • New Qualified Fuel Cell Motor Vehicle Credit (IRC Sec. 30B)
  • New Qualified Advanced Lean burn Technology Motor Vehicle Credit (IRC Sec. 30B)
  • New Qualified Hybrid Motor Vehicle Credit (IRC Sec. 30B)
  • New Qualified Alternative Fuel Motor Vehicle Credit (IRC Sec. 30B)
  • Plug-in Conversion Credit (IRC Sec. 30B)
The first three items on the list are also available for businesses that purchase energy efficient vehicles.

The rules for each of these credits is too detailed to blog about but you can find out more by reviewing the code sections or looking at the required forms where the various credits are calculated - Form 8936 (Qualified Plug-in Electric Drive Motor Vehicle Credit), Form 8834 (Qualified Plug-in Electric and Electric Vehicle Credit), and Form 8910 (Alternative Motor Vehicle Credit).

Tuesday, January 12, 2010

Green Tax Incentives for the Home (Part II)

In Part I we covered the Non-business Energy Homeowner Credit provided in IRC Sec. 25C. In this post we'll cover the Residential Energy Efficient Property Credit provided in IRC Sec. 25D.

Like the IRC Sec. 25C Credit, this is available to individual taxpayers and is based on the cost of energy efficiency improvements made to their United States residence. The nonrefundable credit is for 30% of certain expenditures. With one exception however, the expenditures under 25D need not be made to a principle residence, making the credit available on multiple residences located in the United States.

It should be noted that 25D credits can offset both regular and AMT tax. Any credit allowed under 25D reduces the basis of the property by the amount of the credit.

In general, this tax credit covers:
  • Qualified solar electric property expenditures;
  • Qualified solar water heating property expenditures;
  • Qualified fuel cell property expenditures;
  • Qualified small wind energy property expenditures;
  • Qualified geothermal heat pump property expenditures;
It should be noted that many of these credits had limits between $500 and $2,000 prior to 2009. A number of new laws eliminated the limits on everything but the fuel cell property for the years 2009 through 2016.

Labor costs to prepare, assemble and install the property is included in the credit calculation. Expenditures to heat a swimming pool or hot tub are not allowed.

Taxpayers should get documentation from the manufacturer to claim the credit. The credit can be claimed by properly completing Form 5695 (Residential Energy Credits) and attaching it to the taxpayer's Form 1040.

Sunday, January 10, 2010

Green Tax Incentives for the Home (Part I)

There are federal tax credits to help you green your home. IRC Sec. 25C and IRC Sec. 25D provide for the federal credits. I'll cover IRC Sec. 25C in this post and IRC Sec. 25D in the next post.

IRC Sec. 25C provides Non-business Homeowners Energy Credits of 30 percent up to $1,500 aggregate cap. This credit is for expenditures made in 2009 and 2010. It is set to expire at the end of this year. IRC Sec. 25C is for improvements to a principle residence.

The credit is for:
  • Qualified energy efficiency improvements, and
  • Residential energy property expenditures
"Qualified energy efficiency improvements" is mostly about improvements to the building envelope. Windows, skylights, roofs, insulation, and doors would all qualify if they meet the appropriate performance standards.

"Residential energy property expenditures" is where you get your credit for furnaces, boilers, heat pumps, air conditioners, hot water heaters, fans, and the like. This equipment must meet performance and quality standards to qualify.

The IRS issued Notice 2009-53 to provide interim guidance on the credit. One thing to note is that the IRS cautioned that Energy Star certification doesn't establish that a product is qualified for credit, especially with regards to exterior windows and skylights placed in service after enactment of the American Recovery and Reinvestment Act of 2009.

Taxpayers should make sure they receive proper certification from the manufacturer for property on which they plan to take the credit.

Friday, January 8, 2010

Going Green using the Tax Law

I'm often asked about tax and other governmental incentives for going green, so thought I'd give a high level overview. It would probably take a book to cover all the federal, state and local incentives that might be available so I'll just be covering the federal tax incentives.

I've worked with clients who got part of their funding to "go green" through federal programs like USDA REAP Grants, which are available for rural development. I do not know where one would find a comprehensive list of all the available programs that might fund your green project.

On a local level however, you should always check the Database for State Incentives for Renewables & Efficiency to see what local incentives are available.

For the CPAs and attorneys who might be interested, there are three main federal Acts which provide tax incentives for businesses and individuals:
  1. The American Recovery and Reinvestment Act of 2009 (ARRA)
  2. Emergency Economic Stabilization Act of 2008 (EESA)
  3. The Energy Policy Act of 2005
Check back and I'll cover the incentives in the next few posts.