Amidst the NFL’s 2024 “big game” event, Taylor Swift’s carbon emissions were under scrutiny for flying her private jet from working in Japan to Las Vegas to see Travis Kelce play. In short, her travels raised attention and concerns about how her business and personal travel impacted the environment, let alone were taxed. From a corporate tax perspective, these headlines also prompt a conversation about environmental tax credits and incentives, as well as carbon offset credits. Learn more about how businesses can take advantage of ongoing environmental tax deductions.
What business travel expenses are tax deductible?
Before we get to the environmental side of things, it’s helpful to know that under the Tax Cuts and Jobs Act of 2017, private jets purchased and placed into service between September 2017 – January 2023 could be expensed 100%. To expense ongoing travel costs, a business must be able to show that:
- the purpose of the flight must be for business, falling under the “necessary and ordinary business expense” criterion
- their travel is to an out-of-the-way locations without ready commercial air service
- timing and duration of business flights are unpredictable, or
- personal security is a significant concern
Based on these criteria, entertainers like Taylor Swift are completely able to write off their jetsetting ways; the gray area happens when business and personal trips overlap. Due to the federal Inflation Reduction Act (and public outcry over celebrity private jet emissions) the IRS is using resources to audit high wealth individuals and businesses, scrutinizing expenses like private jet usage to crack down on misuse of business vehicles for pleasure. Private jet owners should ensure good recordkeeping to prepare for possible IRS inquiries.
For businesses not needing a private jet, common travel tax deductions may include vehicle payments, maintenance, and/or mileage, depending on usage.
What are environmental tax deduction opportunities for businesses?
To help offset her carbon footprint, Taylor Swift and many other celebrities purchase carbon credits, which can be realized in the forms of reforestation, renewable energy and other methods, managed by third-party organizations to combat climate change. Companies like Disney also invest in carbon offsets as well by disclosing their operations’ greenhouse-gas emissions and targets and plans for reducing emissions over time.
In lieu of lawmakers agreeing on climate change policies, tax legislation is being leveraged to promote clean energy and carbon neutrality. Under the same law that invited more IRS oversight, the Inflation Reduction Act offers a long list of environmental tax incentives, credits and deductions, several specifically for businesses. Some of the popular opportunities include:
- Investment Tax Credit (ITC) and Production Tax Credit (PTC): install solar panels or renewable energy systems through at least 2025, Investment Tax Credit (ITC) of 30% and Production Tax Credit (PTC) of $0.0275/kWh (2023 value), as long as projects meet prevailing wage & apprenticeship requirements for projects over 1 MW AC, a credit of up to 30%
- Clean Fuel Vehicle Tax Credit: receive a credit of up to $7,500 for purchasing a new electric vehicle or $4,000 for purchasing a new plug-in hybrid EV; this is especially useful for businesses with fleets
- Energy Efficiency Improvement Credit: upgrade lighting systems, improve insulation, install high-efficiency HVAC systems and more to receive a tax credit of up to $5 per square foot
- Advanced Manufacturing Production and Investment Credits: while production credits vary by component type for manufacturers of solar, wind, or battery components, as well as inverters and critical minerals, domestic manufacturers of semiconductors and of equipment used to manufacture semiconductors receive a base credit of 25% of the taxpayer’s investment in a qualified manufacturing facility
- Elective Pay and Transferability: essentially, a business may be able to either claim the credit and file an annual tax return to claim elective pay for the full value of the credit or transfer all or a portion of the credit to a third-party buyer in exchange for cash
While small business owners have the least to gain from these environmental tax deductions, it’s advisable to connect with a tax advisor to discuss options and take advantage of these opportunities.
Can your business take advantage of environmental tax deductions?
If your business is growing or expanding, notably in warehousing or manufacturing, you have the ability to take advantage of development credits for choosing clean energy. Manufacturers and large corporations stand to benefit the most, with the ability to invest in clean energy vehicle fleets and producing or using alternative fuel sources.
Corporations that make social responsibility pledges about their investments in their communities and interest in creating a better future can leverage these credits to help realize their environmental goals, with the byproduct of attracting next-generation workers seeking employment at climate-aware organizations. With no detailed guidance issues from the IRS about use of these IRA credits, businesses have a lot of leeway in applying for them.
While your business investment in reducing your carbon footprint may not be fully deductible like Taylor Swift’s, connect with a tax attorney or advisor today to see what environmental tax deductions could potentially benefit you and your business growth. As always, FLB’s tax law attorneys in Allentown, PA remain up to date on tax legislation that impacts our clients and community. Please reach out to discuss Inflation Reduction Act legislation and other local, state, and federal tax statutes.
