Climate change has been at the forefront of discussions for some time now. How can we reduce the negative impact on the environment? What are sustainability measures that companies can implement?

However, without incentives, most manufacturers are hesitant to foot the bill for green initiatives. Legislators understand this, which is why the Inflation Reduction Act of 2022 implements numerous tax incentives for manufacturers who pursue green initiatives. Here are four tax credits to leverage this upcoming filing season.

Advanced Energy Project Credit

The Advanced Energy Project Credit, also known as IRC 48C, allows manufacturers who invest in production facilities with clean-energy technology to claim a credit equal to 30% of the investment.

Prior to the Inflation Reduction Act, only facilities that produced renewable energy were able to claim this credit. Now, facilities that produce renewable fuel generation, electric vehicle components, electricity grids, and carbon capture can take this credit. Additionally, facilities that recycle certain components are now eligible.

Advanced Manufacturing Production Credit

Another green initiative was found in IRC 45X, which is the Advanced Manufacturing Production Credit. Using green energy, such as solar and wind energy devices, renewable energy, and electric vehicles, can create a tax credit for manufacturers.

If your manufacturing business utilizes green energy in the production process, you may be eligible for a credit based on the efficiency of the component piece. Couple the Advanced Energy Project Credit with the Advanced Manufacturing Production Credit and your business can save thousands on your tax bill each year. 

Commercial Electric Vehicle Tax Credit

Are you considering purchasing a new vehicle for your manufacturing business? If so, it’s important you consider the tax benefits of purchasing electric. The Credit for Commercial Clean Vehicles allows many manufacturers to take a tax credit of up to 30% of the new vehicle cost.

In addition, the Alternative Fuel Refueling Infrastructure Credit offers manufacturers another 30% credit for charging infrastructure, which can reimburse your business up to $100,000. Not only can you enjoy significant tax breaks by purchasing commercial electric vehicles, but you also have the opportunity to reduce emissions and your environmental impact.

Commercial Energy Efficiency Tax Deduction

Manufacturers that own property should consider the Commercial Energy Efficiency Tax Deduction, which provides a tax deduction of up to $5 per square foot of area that increases energy efficiency.

This could be utilizing high-efficiency lighting, re-insulating your building, or installing a new HVAC system. If the upgrades reduce energy costs by at least 25%, you can claim the tax deduction. Prior to the Inflation Reduction Act, the upgrades had to reduce energy costs by 50%. Now, this tax deduction is more attainable for manufacturers.

Summary

When it comes time to replace old or outdated equipment, it’s important that you keep these tax credits in mind. Considering green options can open the door to additional tax savings while providing your business with much needed upgrades.

The good news is that you don’t always have to purchase brand new equipment. In fact, buying used can still give way to these tax breaks without requiring your manufacturing business to foot the bill for new machinery.

About IMS Supply: IMS Supply is a leading distributor of maintenance, repair and operations (MRO) products and services with facilities in East and West Michigan and Kentucky. Through our MRO Asset Recovery Program we stock hard to find parts and supplies from thousands of different manufacturers at prices up to 70% less than MSRP. Contact us today to find out how we can help your business.

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