Six Tax Breaks for Companies That Go Green

(Borrowed from the newsletter Bottom Line Secretes...)

Carolyn R. Turnbull, CPA, MST

Grant Thornton LLP

ompanies gain multiple benefits for being green. In addition to helping the environment, they save money on fuel and energy consumption... gain a marketing edge by promoting their environmentally responsible behavior... and become eligible for tax breaks at the federal and/or state levels. Here are six ways companies can go green and gain tax breaks...

1. Allow staff to telecommute. Recent survey: Just one day of telecommuting by one employee saves, on average, an amount of energy equivalent to 12 hours of electricity (measured as equal to 12 hours of an average household’s electricity use). Note: The amount of electricity used was based on energy used for transportation (aside from gasoline) and energy associated with use of commercial office space.

Tax savings: A company does not currently receive a federal tax break for allowing employees to telecommute, but Georgia recently implemented a tax credit for companies whose employees agree to telecommute and other states may follow suit.

Allowing workers to telecommute can also help them qualify for the home-office income tax deduction on their personal returns -- which may help with the business’s labor costs and employee retention.

Helpful support for the employee deduction: A formal written agreement between the company and the employees at the time the telecommuting arrangement goes into effect stating that the arrangement is for the convenience of the company. Note: Be aware that if any of your employees telecommute from a state other than the state where your company is physically located, you need to check what taxes you might owe the other state.

2. Encourage the use of mass transit. Workers can help the environment by using public transportation rather than driving to work. Companies can encourage this practice by offering monthly transit passes as an employee benefit. Payment for the passes can be set up so that employees either pay for them on a pretax basis using an arrangement similar to making pretax contributions to a 401(k) plan, or the company pays for them as a tax-free fringe benefit.

Tax break: The following income tax savings are available to either employees or the company, depending on who pays for monthly transit passes...

If an employee pays for his/her transit passes on a pretax basis, the portion of wages used to pay for the passes is not subject to income tax.

If a company pays for the passes, the company can deduct the cost of the passes. Furthermore, a company can save on employment taxes because employment taxes are not imposed on tax-free transit passes (up to $115 monthly in 2008).

Alternative break: Commuting in a company-provided “commuter highway vehicle” (a vehicle that seats at least six adults, not including the driver) is also tax free up to $115 per employee per month in 2008. At least 80% of the vehicle’s mileage must be used for transporting employees between home and work, and on those trips, at least half of the adult seating capacity of the vehicle (excluding the driver) must be occupied by employees.

3. Use hybrids. A company can purchase a vehicle that runs on alternative fuel, such as the 2008 Honda Civic GX, which operates on compressed natural gas, or a hybrid vehicle (a vehicle that combines gasoline and electric power).

Tax break: The federal government offers a tax credit for purchasing a hybrid vehicle. The amount of the credit is determined by the IRS.

Example: The 2008 Ford Escape two-wheel-drive hybrid is eligible for a $3,000 credit.

For a complete list of available credits, go to the IRS newsroom page at www.irs.gov. State tax breaks (exemption from sales tax on qualified purchases, for example) may also be available.

Caution: Because of their popularity, Toyota hybrid vehicles are no longer eligible for credits, and the credits for Honda hybrids have been reduced in 2008.

4. Buy energy-efficient equipment. Use computers, office machines, etc., that meet energy-saving standards -- they are less costly to run. Information: Visit the Energy Star Web site, www.energystar.gov, and click on “Office Equipment.”

Tax breaks: There are no special tax breaks for energy-efficient office equipment, but small businesses can choose to fully expense the cost of up to $128,000 of equipment purchases in 2008. If total equipment purchases for the year exceed $510,000, then the $128,000 is reduced dollar for dollar by each one dollar of excess purchases (i.e., no deduction once purchases exceed $638,000). If a business doesn’t qualify for expensing or chooses not to use it, the business can depreciate the cost of equipment over a five-year, seven-year, or longer period fixed by law.

5. Make commercial space energy efficient. Energy usage in commercial buildings accounts for 40% of US global warming emissions (excessive amounts of carbon dioxide pumped into the atmosphere). Making buildings more energy efficient can contribute significantly to conservation efforts.

Tax breaks: Companies that own their facilities (buildings, factories, etc.) can qualify for a special tax deduction if their space meets certain federal energy standards. The deduction is $1.80 per square foot of space for buildings that achieve a 50% energy reduction from the target for that type of building (60¢ a square foot for more modest energy-efficiency improvements). You get the deduction for being energy efficient -- it doesn’t matter how much it cost to achieve that efficiency. See IRS Notice 2006-52 for the rules for qualifying for this break.

There may also be state tax breaks and other incentives (loan programs, property tax exemptions) available. In Maine, there is a utility rebate program for half the installation costs and a portion of the equipment costs for energy-efficient water heaters, building insulation, and certain other equipment in commercial and industrial buildings.

6. Convert to solar energy. It can cost thousands to millions of dollars to convert to solar energy, depending on the size of the facility, but it may take only seven years before savings start to materialize.

Tax breaks: There is a 30% federal tax credit for converting to solar power that applies to equipment used to generate electricity, or heat or cool a building, as well as to equipment that uses solar energy to illuminate the inside of a structure using fiber-optic distributed sunlight. Details: See the instructions to Form 3468, Investment Tax Credit.

There may also be significant state-level breaks. In California, there is a utility rebate program for installing solar units (also called photovoltaic cells) to convert sunlight into electricity in commercial and residential property. Details: EcoBusinessLinks, which links to solar energy retailers by state, www.ecobusinesslinks.com/solar_wind_power.htm.

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Tax Hotline interviewed Carolyn R. Turnbull, CPA, MST, senior tax manager, Grant Thornton LLP, Atlanta, www.grantthornton.com, and a member of The Tax Adviser editorial board, American Institute of Certified Public Accountants. She has recently been named to the IRS Advisory Council.

What Every Employer Ought To Know About Company-Supplied Cell Phones

Even after over a decade of being trendy, having a company-supplied cell phone is still a status symbol. But that little gadget may have more implications than just status... if you're the employer, that is.

A little known regulation passed in 1989 holds that company-provided cell phones should be treated like company cars and other executive perks: Personal use qualifies as extra compensation and thus must be taxed.

So, how is something like this tracked? Basically, it's left up to you and/or your employee to go through your cell phone statements and mark off business and personal calls. Sound like a pain in the butt? Well, it is. And not doing it is an even bigger pain in the butt--in the form of full taxation TO YOU on all calls, personal and business.

Although this regulation is outdated and a change seems to be likely, the law is still in effect until then. And despite its lunacy, the good ol' IRS can legally tax you on it.

So, now you know...

Read the full L.A. Times article.

Serious About Blogging? Become Your Own Business!

So, I considered rewriting the whole post in my own words, but why do so when 1) it's written so well the first time around and 2) it would be content stealing. So, without further ado, here is your link to Problogger's 6 Types of Business Entities to Consider As a Blogger.

I personally read Problogger religiously, so the fact that he's paired with TaxGirl (who I also read religiously) is quite funny and even more reason to share the link. This is good stuff from some strong bloggers that really know their topic and good business.

What is a Civil Trust Fund Penalty?

The easiest way to explain this is fees and fines that are placed upon individuals that don't pay their employees' tax withholdings to the IRS.

Here's some background info...
Those taxes that take a nice bite out of your paycheck (Federal, Social Security, Medicare) are not being taken out by the IRS. Your employer withholds these amounts for you. (Don't get all sentimental. They're required by law to do this.) Then, your employer pays those taxes to the IRS quarterly. These quarterly taxes are called "payroll" taxes, also known as 941's.

Here's where the trouble comes in.
What if your employer does not pay these taxes to the government? Big trouble. Not only does the IRS consider this stealing from them, they also consider this stealing for you, the employee, as well. Even worse is when you file taxes and the IRS pays you money in a refund... money the IRS never received from your employer in the first place. Now, as an employer, you've stolen from two people and put the IRS out of some dough. You better believe they're coming after you.

But who will they come after?
This is where the IRS becomes ruthless. "Who" you ask? Anyone involved in payroll is the answer. And they can assign the Civil Trust Fund Portion (unpaid payroll taxes) and Penalties (fines) onto anyone in any fashion. It does not have to be one person or the big wig. It can be anyone they get their hands on.

My Advice
Act quickly. Find a reputable firm to represent you because these matters get tricky. Research thoroughly who will be doing your bidding and cooperate.

Additional Resources...

Items on the Trust Fund Recovery Penalty

940 or 41...I know it's 9-something

In the world or taxation, it is very easy to get lost among the jargon and numerous forms. Two forms that always seem to get confused with one another are the IRS Forms 940 and 941. Obviously at first glance you might assume these two IRS forms must be similar. I mean, the number 941 does follow 940. But form 940 could not be any more different than form 941.

IRS Form 940- a.k.a. The Annual Unemployment Tax Return. Each business is to report all Federal Unemployment Tax Act (FUTA) tax based on the amount paid to each employee. As far as the federal base is concerned, the tax applies to the first $7,000 paid to each employee in a year after subtracting any exempt payments. Futa tax, along with state unemployment systems, provides payment of unemployment compensation to workers who have lost their jobs.

IRS Form 941- a.k.a. The Employer Quarterly Tax Return. All businesses that withhold wages from their employees are required to file 941s each calendar quarter. Any business that pays more than $2,500 in net taxes is required to make quarterly deposits to authorized financial institutions.

You see. Two very different things. But what gets me is how a business owner will call in looking for help with payroll taxes and not know the difference between these two forms. Seriously, 0nce you know what each is, there should not be any confusion from that point forward. And as a business owner, you are expected to remember which is which and pay both. Maybe that's an indication of why they have the tax problems they do....hmmm.

Cheers!
-Taxus

As always, you can find an array of articles by perusing this site or by checking out my coworkers' individual site:

IRS MIND

And if you need the assistance of a tax resolution firm, seek out the best: Effectur, Inc.