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Inflation Reduction Act Incentives for ESG Investments

Inflation Reduction Act Incentives for ESG Investments

The Inflation Reduction Act, aiming to tackle climate change, employs a range of incentives to promote the adoption of green energy. Recently, the government has allocated a substantial $369 billion towards clean energy programs over the next decade. This allocation not only benefits the environment but also presents an opportunity for businesses to claim tax credits when investing in green energy projects.

Businesses stand to gain various tax advantages under this act. These benefits include base credit rates that can be amplified by up to five times the base rate, depending on the wages paid. Moreover, a 10 percent bonus is offered for both domestic content and energy communities. Additionally, low-income communities qualify for bonus credits ranging from 10 to 20 percent. The government has also introduced new and improved credits for advanced manufacturing, clean hydrogen, clean fuel, and nonbusiness energy initiatives.

The scope of tax credits extends to energy-efficient homes and residential clean energy projects, thereby encouraging sustainable practices in the residential sector. Furthermore, the government continues to expand the list of entities and categories that can benefit from these tax credits. Some noteworthy additions include carbon capture, energy storage, greenhouse gas reductions, sustainable aviation and biofuels, as well as electric vehicles and charging infrastructure.

Regarding credit monetization, the act provides two options for taxpayers. The first option is direct payment, where the tax credit is treated as an overpayment of taxes. This alternative is available to taxpayers engaged in carbon capture, hydrogen production, and advanced energy manufacturing for the initial five years. The second option is transferability, which grants taxpayers the election for a one-time transfer of the tax credit.

By incentivizing the use of green energy through tax credits, the Inflation Reduction Act fosters environmental sustainability while offering tangible benefits to businesses and communities. The significant financial allocation for clean energy programs demonstrates the government's commitment to combat climate change and transition towards a greener future. As the act continues to evolve, it is expected to play a pivotal role in promoting various sectors and technologies that contribute to a more sustainable and environmentally conscious society.

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