I'm writing this column at 10 p.m. at night after a long week reviewing tax returns. Although tax reform has produced some mixed results, I'm still finding benefits for my clients.
This year, people have been discussing solar energy -- both purchasing solar panels and selling or leasing property to solar energy businesses. This got me thinking about the variety of credits available to taxpayers. There is a long list of credits, but here are a few that have sparked conversations.
-- Fuel credits are probably the most commonly used tax credits in farming. A farmer (or farm entity) can claim a fuel credit for certain nontaxable uses of fuel. If you purchase undyed diesel, kerosene or gas (which you paid tax on), you may be eligible for a fuel credit. If the fuel was used for farm purposes (including aviation), off-highway use (forklifts, skid steers) or boats for commercial fishing, the farmer may be eligible for the credit.
-- Although only extended through December of 2017, there was a 50-cent-per-gallon credit for vehicles operating on natural gas, liquefied hydrogen, propane, P-Series fuel or liquid fuel derived from coal. This applies to farms that use natural gas and propane forklifts and small motorized vehicles. Although the credit is not available for 2018 or 2019 at this time, you can always apply for the credit tax years it was.
-- A credit up to $7,500 is available for certain electric-powered cars. That amount is based off the size of the car and its battery. However, when a manufacturer produces the 200,000th plug-in vehicle, the credit is phased out.
-- For farms that are looking into solar or geothermal, the Business Energy Investment Tax Credit allows for a 30% credit in 2019, 26% credit in 2020, 22% credit in 2021 and 10% credit for 2022 and beyond. The credit applies to solar energy, fuel cells and micro turbines, and it increased the credit amount for fuel cells. It also established new credits for small wind-energy systems, geothermal heat pumps, and combined heat and power (CHP) systems. Most of these would also apply for accelerated depreciation.
People often ask about individual tax credits not business related. And solar and geothermal systems are eligible for tax credits, much like the Business Energy Investment Tax Credit. There is one major difference: residential tax credits for solar and geothermal end Dec. 31, 2021. Also note that, unlike a business, a residential solar or geothermal system can't be depreciated.
-- For those who hire employees, the Work Opportunity Tax Credit (WOTC) was extended through 2019. If you hire someone in a target group (unemployed veterans, Temporary Assistance to Needy Families or Supplemental Nutrition Assistance Program recipients, Social Security Income recipients, ex-felons, residents in Empowerment Zones and Rural Renewal Counties, to name a few), you may be eligible to receive a tax credit equal to 25% or 20% of a new employee's first-year wages. Consult your CPA to learn more about the WOTC credits before hiring an employee in one of these target groups.
These are just some of the credits available to businesses and individuals. There are many others out there to consider, but before making a major purchase or hiring someone who might provide a tax benefit, consult your CPA to thoroughly talk through the implications.
Editor's note: Tax Columnist Rod Mauszycki is a CPA and tax partner with the accounting firm of CliftonLarsonAllen, in Minneapolis, Minnesota. Send questions to email@example.com
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