Tag Archives: tax credits

hvac

Q&A on Energy-Efficient Tax Credits

Just two months from now, it’s time to pay the taxman once again – but for some homeowners, there may be a new way to cut the bill. The government legislation that avoided the so-called fiscal cliff included a provision that retroactively reinstated 25C Tax Credits for residential energy efficiency home improvements (up to $500 on the installed cost.) The credit applied to purchases made in 2012, as well as for future purchases in 2013. The credit previously expired December 31, 2011.

Service Experts, North America’s largest HVAC service company, has provided a recap of frequently asked questions and answers on the 25C Residential Energy Tax Credit (HVAC Tax Credits).

Q.  What purchases do the tax credits apply to?

The tax credit applies for qualifying new; water heaters, furnaces, boilers, heat pumps, central air conditioners, building insulation, windows, roofs, circulating fans used in a qualifying furnace, and stoves that use qualified biomass fuel

Q.  What are the applicable purchase dates to redeem the credit?

The credits were made retroactive to January 1, 2012 and apply to qualifying equipment installed any time after December 31, 2011 through December 31, 2013.

Q.  What are the household qualifications?

The home must be the taxpayer’s primary residence to qualify.

Q.  How much is the tax credit for?

For purchases made in 2011, 2012, and 2013, the total amount for all three years is limited to $500. Taxpayers are ineligible for this tax credit if the credit was claimed in an amount of $500 in any previous year.

Q.  How do I claim the tax credit?

File IRS Form 5695 with your 2012 and 2013 federal tax return. (Service Experts has the form available for download at:

http://www.serviceexperts.com/SamsBlog/February_2013/HVAC_Tax_Credit_FAQs_for_2013.aspx

Most major tax software providers should include the form in their tax return process, but check to make sure. Also make sure your CPA knows about all your home improvement purchases to receive all the applicable tax benefits.

Q.  When does the tax credit expire?

The energy efficiency home improvement tax credit will expire on December 31, 2013 unless reinstated again by the government.

Q. What heating and air equipment qualifies for a tax credit?

Only specific models meet the specified minimum efficiency requirements to qualify for the tax credit. Service Experts Heating & Air Conditioning provides a detailed breakdown at:

http://www.serviceexperts.com/SamsBlog/February_2013/HVAC_Tax_Credit_FAQs_for_2013.aspx

 

hvac

Q&A on Energy-Efficient Tax Credits

Just two months from now, it’s time to pay the taxman once again – but for some homeowners, there may be a new way to cut the bill. The government legislation that avoided the so-called fiscal cliff included a provision that retroactively reinstated 25C Tax Credits for residential energy efficiency home improvements (up to $500 on the installed cost.) The credit applied to purchases made in 2012, as well as for future purchases in 2013. The credit previously expired December 31, 2011.

Service Experts, North America’s largest HVAC service company, has provided a recap of frequently asked questions and answers on the 25C Residential Energy Tax Credit (HVAC Tax Credits).

Q.  What purchases do the tax credits apply to?

The tax credit applies for qualifying new; water heaters, furnaces, boilers, heat pumps, central air conditioners, building insulation, windows, roofs, circulating fans used in a qualifying furnace, and stoves that use qualified biomass fuel

Q.  What are the applicable purchase dates to redeem the credit?

The credits were made retroactive to January 1, 2012 and apply to qualifying equipment installed any time after December 31, 2011 through December 31, 2013.

Q.  What are the household qualifications?

The home must be the taxpayer’s primary residence to qualify.

Q.  How much is the tax credit for?

For purchases made in 2011, 2012, and 2013, the total amount for all three years is limited to $500. Taxpayers are ineligible for this tax credit if the credit was claimed in an amount of $500 in any previous year.

Q.  How do I claim the tax credit?

File IRS Form 5695 with your 2012 and 2013 federal tax return. (Service Experts has the form available for download at:

http://www.serviceexperts.com/SamsBlog/February_2013/HVAC_Tax_Credit_FAQs_for_2013.aspx

Most major tax software providers should include the form in their tax return process, but check to make sure. Also make sure your CPA knows about all your home improvement purchases to receive all the applicable tax benefits.

Q.  When does the tax credit expire?

The energy efficiency home improvement tax credit will expire on December 31, 2013 unless reinstated again by the government.

Q. What heating and air equipment qualifies for a tax credit?

Only specific models meet the specified minimum efficiency requirements to qualify for the tax credit. Service Experts Heating & Air Conditioning provides a detailed breakdown at:

http://www.serviceexperts.com/SamsBlog/February_2013/HVAC_Tax_Credit_FAQs_for_2013.aspx

 

Taking Advantage of Tax Credits

Taking Advantage Of Tax Credits: Donating To Local Charities

Did you know that Arizona law allows taxpayers to receive a tax credit by simply making a donation to a local charity organization?

It’s true!

Through the Working Poor Tax Credit by the state of Arizona, joint filers can receive a credit of up to $400, while individuals are eligible for up to $200 — but time is running out as donations must be received by your nonprofit of choice by the end of the year.

But how?

Below are some of the most frequently asked questions we get this time of year regarding the tax credit as well as resources for additional assistance.

Q: What is the tax credit?

A: The tax credit, called the Working Poor Tax Credit by the state of Arizona, is a dollar-for-dollar charitable contribution you can give to 501 (c)(3) nonprofit. With the credit, you can receive a dollar -for-dollar tax credit, up to $400, on your state income taxes while helping our community’s youth — at no additional cost to you. You can either pay the State or you can pay the nonprofit organization directly.

Q: How do I qualify for Charitable Tax Credits?

A: If you itemize deductions on your Arizona state tax return, you may qualify for the tax credit. Donations can be made by cash, check or credit card.

Q: What is the maximum I can give?

A: We appreciate any donation you are willing to give, but the maximum tax credit for filling as a married couple is $400 and $200 if filing single.

Q: When is the deadline to contribute for 2012?

A: Any organization must receive your tax credit contribution by Monday, December 31, 2012.

Q: I currently use the Public Education Tax Credit. Can I do this tax credit as well?

A: Yes. Each tax credit is independent. Therefore, you can take advantage of both the Public Education and Working Poor Tax Credits.

Q: How do you nonprofits utilize these tax credit dollars?

A: General to provide critical services. For us, all tax credit dollars will be used by the Boys & Girls Clubs of Greater Scottsdale to provide more than 100 youth development programs at the organization’s nine branches and 12 outreach sites, including sports, fitness and recreational programming; field trips and summer camp programs; and healthy meals and dental services, to name a few.

Q: How do I know the organization I support qualifies for the credit under this program?

A: Click here. Or, to request a list or to see if an organization appears on the list, call the Department of Revenue in Phoenix at (800) 342-4090.

Q: Can a business make a contribution and claim the tax credit?

A: No. Only individual taxpayers may claim this tax credit.

Q: Can I make contributions to more than one qualifying charitable organization?

A: Yes, but the total Arizona Assistance to the Working Poor Tax Credit allowed is still
$200 per individual or $400 for married couples filing jointly, regardless of the number of organizations you support.

Q: Does the tax credit also apply to my federal income tax returns?

A: No. The Charitable Tax Credit applies only on your Arizona State income tax. However, you may be able to claim a federal tax deduction for the amount donated.

Should you have questions, please consult your tax advisor.

Arizona Tax Credit, ASCT

Is Your Business Taking Advantage of the Arizona Tax Credit Program?

Is Your Business Taking Advantage of the Arizona Tax Credit Program?

Did you know that Arizona businesses can redirect their entire state tax liability to scholarship organizations that help improve education in Arizona statewide?  If your business is not taking advantage of these credits, please read on.

The Program

The Arizona Tax Credit program allows any C-corporation that pays Arizona corporate income tax to redirect that liability to state approved school tuition organizations (STOs) that provide K-12 education scholarships for economically-disadvantaged children. It costs your business nothing; it’s simply a redirection of tax dollars your business must pay each year. Corporate tax dollars can be given to STOs to fund scholarships for low-income children or designated specifically for scholarships for displaced and disabled students.

Corporations receive a dollar-for-dollar tax credit with the state, therefore allowing corporations to redirect funds that they must already pay to the state of Arizona to the STO at absolutely no cost.

The process to enroll is very simple, and the Arizona School Choice Trust (ASCT) can handle all the paperwork for your corporation. Read more information about the program on ASCT’s website asct.org.

How do these dollars help?

Every single scholarship ASCT gives out changes the course of a student’s life forever and gives a child a chance at graduating, going on to college and becoming a productive member of Arizona’s workforce and business community.

Here’s one example of ASCT’s success stories: Jorge has been on scholarship from ASCT for nearly a decade and is now a senior at Glendale Christian Academy. He says the school has transformed his life and plans to go on to college to pursue a BS in business management with a minor in music and one day open his own business.

How can your business participate?

The process is simple. To take advantage of this tax credit, a corporation contacts ASCT and pledges to make a contribution of $X amount (any amount up to the company’s state tax liability for the year).

ASCT then completes a one-page application for that amount and submits it to the Arizona Department of Revenue (ADOR) for the corporation. If the tax credit cap (more than $24 million this fiscal year) has not been met, the ADOR approves the request within 20 days. The corporation has 10 days from the date of approval by the ADOR to make the contribution. The corporation takes the tax credit on its tax return, but may carry any unused credit forward for up to five years. The corporation may take either the federal deduction or the Arizona state credit, but not both. To claim the credit, the corporation lists the credit on the standard 120 form and files a 335 form attached to the return.

Arizona School Choice Trust mission is to provide hope and opportunity to low-income families by providing tuition scholarships to enable their children to attend private elementary and secondary schools (K-12). We believe that a solid primary education is the key to giving children the opportunity to succeed in life and achieve their dreams, and it is key to providing Arizona a strong, educated workforce.

ASCT is the oldest and most experienced STO. ASCT focuses its scholarships on low-income students who qualify for the National School Lunch Program.  Since 1993, it has  provided more than 10,000 scholarships.

Visit asct.org to find out more about how your business can take advantage of these tax credits and change the lives of students across the state.

The idea of starting your own business can be frightening with the recession - AZ Business Magazine Nov/Dec 2010

6 Tips To Launching Your Own Business In A Down Economy

The idea of starting your own business can be frightening, particularly with the recession stubbornly choking the Arizona economy. However, by following a few tips for getting started, launching your own company doesn’t need to be scary.

In fact, there are a few advantages to launching a business during an economic downturn. Commercial space is available at extraordinarily good prices. Talented professionals are looking for work. Goods and services can be found at discounted prices. And, depending on your industry, competition may be scarce.

1. Practice Due Diligence
It’s critical to objectively evaluate your proposed venture. Asking yourself some hard questions may discourage you from pursuing your first venture, but that is not a negative or pessimistic approach. It’s a useful tool for evaluating your business. Start with these questions: Is there a genuine need for the product or service you are offering? Is that need already being met by established companies? If so, what improvement or unique feature are you bringing to the table? Do you have the necessary skills and resources to start your business? If not, are you prepared to bring in the people with the skills and capital that are needed, and possibly give up some ownership?

2. Prepare a Business Plan
Too often, entrepreneurs articulate a great idea and foresee success, but gloss over the hard work. That hard part is thinking through the idea for your business and writing it into a plan, including the steps you’ll need to take to implement your idea. Start with an outline and consult a book or online guide about writing business plans. It’s important that your end result is a completed plan that includes a budget for your business.

3. Determine Capital Requirements
Most small businesses are funded with the business owner’s own money and funds from family and friends. A venture capitalist or angel investor may provide the necessary capital in exchange for part ownership of your business. It’s critical to focus on the amount of money you will need to start and operate your business, including at each stage of the company’s development.

4. Create a Board of Advisers
Creating a network of advisers can be a tremendous asset to a start-up business. It’s helpful if that board consists of advisers with a diverse array of professional backgrounds. That diversity will ensure you receive insights from a wide range of perspectives. Good choices for advisers may include your attorney, accountant, suppliers, customers, bankers and realtors.

5. Tap Into Available Resources
There are myriad advisers, consultants and nonprofit agencies that will assist you in developing your business — marketing it, creating websites and raising capital — who work for free or a nominal fee. The Small Business Administration (SBA), for instance, is a valuable and cost-effective resource. Moreover, SCORE: Counselors to America’s Small Business, provides free advice and mentoring for small business owners. If you pay for a similar service, be sure to get recommendations from a trusted adviser. Then, check that company’s references.

6. Listen
The more you listen — the more you truly hear an adviser’s ideas — the more advice you will be able to translate into actionable plans for your company.

Still, while these recessionary times may present a good opportunity for entrepreneurs, there are several considerations to keep in mind.

Select an industry that is doing well, despite the recession. The health care industry, senior care and information technologies are financially better off than many other industries.

Choose a business sector with a bright future — Businesses that tap into growing consumer demand for green or sustainable products may be an avenue worth pursuing. There was a 41 percent increase in consumer purchases of green products and services from 2004 to 2009, according to the research firm Mintel. Moreover, there may be federal or state subsidies or tax credits available for green companies.

Select a company with low capital requirements. Home-based businesses with low start-up costs may be good choices, notably because the ongoing credit crunch will likely make it tough to get a loan to cover these expenses.

If you are considering starting your own business, you will be in good company. More than half the companies listed on the Fortune 500 in 2009 were launched during a recession, according to the Ewing Marion Kauffman Foundation.

Moreover, in 2009, an average of 558,000 new businesses were launched each month in the United States.

The trick to joining these ranks is to get started. There’s no better time than now, recession or not.

“The critical ingredient is getting off your butt and doing something,” Nolan Bushnell, founder of both Atari and Chuck E. Cheese, once said. “It’s as simple as that. A lot of people have ideas, but there are few who decide to do something about them now. Not tomorrow. Not next week. But today. The true entrepreneur is a doer, not a dreamer.”

Arizona Business Magazine Nov/Dec 2010

Health Care Reform in Arizona - AZ Business Magazine Nov/Dec 2010

Business And Community Leaders Are Trying To Figure Out What Health Care Reform Will Mean In Arizona

For government and business, providers and patients, the U.S. health care reform legislation promises a new world of costs and care.

Most individuals without insurance will be able to get it. Those who have insurance already probably will have to pay more for it. Hospitals, doctors and others in the front lines of health care will begin to change long-established ways of doing business. State governments and many businesses, already battered by recession, will face new costs and possibly some benefits.

But beyond these generalizations, little is certain about what health care reform will mean in Arizona and across the country. The bill is vague in many areas and leaves important details of implementation to be determined by federal regulators and other officials in the weeks and months ahead.

“Quite frankly, we won’t know the financial impacts until we move through the process and see what the federal government and insurance companies do,” says Donna Davis, chief executive officer of the Arizona Small Business Association (ASBA).

Barry Broome, president and chief executive officer of the Greater Phoenix Economic Council (GPEC), says it is too early know what the bill will mean.

“It sounds very good to be able to cover the uninsured, but what the costs are and how they are going to be distributed are still not clear,” he says.

Marjorie Baldwin, director of the School of Health Management and Policy and assistant dean at Arizona State University’s W. P. Carey School of Business, says it is important to note that the law’s primary purpose is to cover the uninsured.

“This bill is about access,” Baldwin says. “It’s designed to cover the uninsured. There is much less in it about quality of care and little about cost controls.”

On what the price tag for health care reform will be, Baldwin says, “The one safe prediction is that it is going to cost much more than anticipated.”

Hospitals and doctors
Whether the health care overhaul is ultimately deemed a success will be determined to a large extent by what happens inside the nation’s hospitals, clinics and doctors’ offices.

Peter Pavarini, a health care lawyer for Squire, Sanders and Dempsey and an adviser to health care organizations, believes hospitals are actually well-positioned to adapt to the new law.

“Hospitals have been anticipating something happening for some time,” Pavarini says. “Hospitals have the resources to prepare better than some of the other players in the health care system.”

Several provisions in the law are expected to lead to a dramatic shift in the way hospitals are paid by insurance. Under the existing system, providers receive set rates for specific medical procedures. The new law moves toward a system in which hospitals receive a set amount for treating an overall condition or a so-called “bundled payment.” This shift is expected to require more detailed treatment plans, coordinated care and closer cooperation among hospitals and physicians.

“With the bundled payments, you have to have a more integrated approach and an approach that aligns physicians and hospitals,” says Suzanne Pfister, vice president of external affairs at St. Joseph’s Hospital and Medical Center in Phoenix.

The hospital already has been moving in this direction, according to Pfister. St. Joseph’s has forged a series of partnerships with area health care organizations, including outpatient and short-stay providers United Surgical Partners and SimonMed Imaging
.
“We are continuing to look at moving from acute care to a continuum of care,” Pfister says.

Pavarini believes the new payment systems for Medicaid and Medicare will bring big changes to care at hospitals. When the system is in place, hospitals will get a set payment for delivering all of the care a patient receives from 72 hours before admission to 30 days after discharge, he notes.

“That’s a whole different model from what we have now,” Pavarini says. “This means it’s not good enough just to get the patient in and out of the hospital. It means testing can’t be duplicative. And it means patients better be ready for discharge when they’re released.”

Pavarini says doctors and hospitals will need to cooperate more closely as the law is implemented. He sees hospitals forging formal alliances with physician groups and appointing more practicing physicians to their boards of directors.
A more basic concern for hospitals is how much they will be paid. Because expansion of Medicaid is a key feature of the law, hospitals are concerned about long-term revenue.

“Payments are going to shift more to the level of Medicaid, and Medicaid has not been a particularly good payer,” Pfister says.

Officials at Phoenix-based Banner Health, one of the largest nonprofit health care systems in the country, are still examining the legislation to assess its consequences.

“This reform is primarily about health insurance, not health care reform,” the organization said in a statement. “It will result in expanded AHCCCS (Medicaid) coverage in Arizona and access to insurance, but the need remains to address reducing the cost of health care.”

The bill includes a number of provisions that will increase the role of primary-care physicians. Medicaid fees will go up for primary-care doctors, who also will be eligible for bonuses from Medicare.

St. Joseph’s is concerned about being able to find enough physicians as health care reform is implemented in the coming years, according to Pfister.

“Arizona has fewer physicians per capita than the national average, so we face that already. Arizona does not have enough primary-care physicians and even some specialists,” she says.

The larger hospitals that have formal ties to physicians and other providers probably will fare best under health care reform, according to Pavarini. But he believes smaller, more isolated hospitals will struggle and some will close.

“Arizona has a number of smaller hospitals in less populated areas,” he says. “I think the outlying hospitals in rural communities could have difficulty.”

Businesses
While all businesses will be affected by the health care reform law, some will feel it more than others. Probably least affected will be firms that already provide health insurance now and have a pool of employees large enough to allow the companies to self-insure.

“For most large businesses, fundamentally there’s not a lot of change,” says Keith Maio, president and chief executive officer of National Bank of Arizona. “For us, we’ll have to be a little more paperwork conscious.”

ASU’s Baldwin says the principal effect on large employers will be slightly higher expenses, as they absorb some of the cost of the system’s expanded coverage.

“For larger employers, the law is not going to mean a big difference, but they are going to see their costs go up,” she says.

Smaller businesses though will face new uncertainties, and, for some, significant new costs.

“I would say that there is a cloud of concern generally for small businesses,” says Maio, whose bank has many small business customers. “People who have been through the recession and are still slugging it out have learned to survive. But they still have trouble seeing how they can get back to where they were . That’s why something like the health care bill can have such an impact.”

The law offers a complex mix of incentives and penalties designed to spur employers to offer health insurance. In 2014, employers with 50 or more workers who do not provide coverage will face penalties of $2,000 or $3,000 per employee. Some employers who provide insurance and have fewer than 50 workers will be eligible for tax credits.

“In a sense there is both a carrot and a stick,” says Bradford Kirkman-Liff, professor in the School of Health Management and Policy at W. P Carey. “The idea is to create a very strong incentive to provide insurance.”

The tax credits could offset as much as half of the insurance costs for some employers, Kirkman-Liff notes.

“Arizona has a high number of small employers. Many of them don’t provide health insurance, but some do. This would give them a reason not to drop it,” he says.

The law also instructs states to establish insurance exchanges, where small employers and individuals can purchase policies from insurance companies. The exchanges are designed to bring down the cost of insurance by combining groups of buyers into large pools.

But even with government subsidies and insurance exchanges, some businesses will find the burden too large, according Maio.

“The greatest impact will be on those that employ entry-level employees,” he says. “Arizona has a lot of lower-wage businesses who won’t be able to afford to provide insurance. I think some will opt to pay the fine. Then what have you accomplished?”

Another problem that Maio sees is the 50-employee threshold for the coverage requirement. Employers with fewer than 50 can escape penalties for not providing insurance.

“Have you given them a disincentive to adding people?” he asks.

Davis at ASBA says most business owners are focused on short-term challenges and do not have a clear picture of how the law will affect them.

“For some small businesses who fit the prescribed requirements, it will help offset some of their costs,” Davis says. “For others, it simply won’t.”

green-house

Bringing Energy-Efficient Mortgages To Valley Homeowners

Mortgage and auditing firms are teaming up to help green homeowners cut costs

Buying a home can come with many unexpected and obstructive costs. REEIS is partnering with mortgage companies to help homebuyers curtail costs and go green.

By teaming up with W.J. Bradley and Wells Fargo, REEIS, an energy efficiency auditing firm, offers free energy audits to homebuyers who are interested in energy-efficient mortgages.

What does an EEM do for a homebuyer?

    An energy-efficient mortgage (EEM) allows homebuyers to:

  • Qualify for a higher loan by taking into account the savings of an energy-efficient home
  • Receive up to $8,000 to put toward energy-efficient improvements after the close of escrow
  • Combine the total amount of energy-efficient upgrades with the loan to create one payment

Previously, homebuyers would be forced to shell out around $500 for an energy efficiency audit before they would qualify for an energy-efficient mortgage (EEM). This up-front cost “stops the process right there,” says Todd Russo, president of REEIS.

Lenders found it difficult to ask their clients to spend more money without the guarantee of an EEM, Russo says. Now W.J. Bradley and Wells Fargo clients can receive an energy efficiency audit for free.

REEIS’ audit produces two options for the homebuyer to choose from. The two options feature improvements that can be done to the house, each at a different price point.

“Ninety-five percent of people move forward with one of the two packages,” Russo says.

Not only will an EEM create a greener home by making it energy efficient from the start, it will also help the already strapped-for-cash homebuyer save money.

“When factoring all the costs of home ownership, the customer will pay less every month from the day one, in most cases,” Russo says.

REEIS also facilitates tax credits and utility rebates for the average homebuyer that total between $1,250 and $3,000 within two to three months of close.

Although REEIS’ service is only a few months old, Russo says it is going well. In one week, REEIS completed four energy audits with Wells Fargo, which has initiated a nationwide push to offer more EEMs to clients.

In addition to providing this service, REEIS and Russo want to spread the word about EEMs. Russo says everyone who knows about EEMs wants to offer them, which is why REEIS and Russo are trying to “educate the industry – realtors, lenders and homebuyers – that the conventional way of doing things is not the only option,” Russo says.

REEIS’ commitment to EEMs is the main reason why W.J. Bradley teamed up with the company, says Mike Tompkins, team manager and mortgage banker with W.J. Bradley.

Tompkins and Russo met at a mixer and decided that their shared excitement about EEMs would create a solid partnership.

“It amazes me that [the EEM program is] so under-utilized,” Tompkins says. “We need a vehicle, it seems like, to help us get it out to the public.”

This urge for awareness is the foundation of REEIS and W.J. Bradley’s team.

“I see [REEIS’] commitment in wanting to get the word out,” which is why the companies will be partners for some time to come, Tompkins says.

Along with its partnership with REEIS, W.J. Bradley has created flyers, hosts seminars and speaks with real estate agents daily about EEMs.

The service REEIS, W.J. Bradley and Wells Fargo provide is a “turn-key solution” to the lack of information and knowledge about EEMs, Russo says.

AZ Green SceneHomebuyer should “ask questions. Look into it a little deeper,” Russo says. It would be a “shame” for homebuyers to not take advantage of an EEM because they didn’t know it existed, he adds.

Tax Incentives - AZRE Magazine July/August 2010

Tax Incentives for Green Construction Projects

It Saves to be Green – Tax Incentives

Though famous for saying, “It’s not easy being green,” Kermit the Frog may be singing a different tune in today’s economy, where going “green” often comes with significant opportunities for tax incentives and savings.

Both the federal government and many states, including Arizona, provide a range of tax credits and other financial incentives for builders to go green. Key among these incentives are federal’s energy-efficient commercial buildings tax deduction and energy investment tax credit, and the State of Arizona’s commercial and industrial solar tax credit and renewable energy tax incentive program. Unfortunately, many builders and real estate professionals have been slow to reap the benefits of these green project incentives, often leaving cash on the table.

Federal Level

Energy-Efficient Commercial Buildings Deduction

Enacted as part of the Energy Policy Act of 2005, the federal energy-efficient commercial buildings deduction provides owners with an immediate tax deduction for all or part of the cost of installing certain energy-efficient property. The deductible amount is up to $1.80 per square foot for the installation of interior lighting, heating, cooling, ventilation, hot water or building envelope systems that are installed as part of a plan to reduce the amount of power used by 50 percent or more, in comparison to a reference building as defined in the Treasury Regulations. The deduction is available for property that is “placed in service” before Dec. 31, 2013, and covers “green” projects such as the installation of automatic lighting controls, efficient insulation, and the use of recycled water for cooling and restroom facilities.

Energy Investment Tax Credit

The federal energy investment tax credit is aimed at encouraging taxpayers to produce and use energy sources other than oil or gas. Under the Internal Revenue Code (IRC), businesses are entitled to claim a 10 percent or 30 percent credit for installing systems that generate energy for the business’ own use. A 30 percent credit is available for the installation of equipment using solar energy to generate electricity or to heat or cool a building, fuel cells that generate electricity, and small wind energy property. A 10 percent credit is available for the installation of a solar system for lighting a building, certain combined heat and power systems, and equipment using groundwater for heating or cooling. In order to claim the credit, the taxpayer must either construct or reconstruct the property, or be the first user of the property, and the residence must satisfy certain performance and quality standards set forth in the Treasury Regulations.

State Level

Arizona Commercial/Industrial Solar Energy Tax Credit

Under Arizona Revised Statutes (ARS), an income tax credit is available to businesses that install one or more solar energy devices in an Arizona facility. The tax credit is equal to 10 percent of the cost of the solar energy device, with up to $25,000 of tax credit available for a single building. The credit is available through the Arizona Department of Commerce (ADOC), which is authorized to certify up to $1 million in solar energy credits per year. Solar energy devices qualifying for the credit generally include devices designed to provide heating, cooling or daylighting, or to produce electrical power from solar energy.

Arizona Renewable Energy Tax Incentive Program

Effective Jan. 1, 2010, the State of Arizona began offering a tax incentive program aimed at encouraging renewable energy product manufacturers to relocate to Arizona, or expand their local operations. The program provides income and property tax incentives to businesses in the solar, wind, geothermal or renewable energy industries that make certain qualifying investments in manufacturing or headquarter operations in Arizona. Qualifying businesses may receive a refundable income tax credit, as well as real and personal property tax reductions. The credit is available through the ADOC, which is authorized to certify up to $70 million in income tax credits for a five-year period, beginning on Jan. 1, 2010.

The green tax credits and incentives highlighted above represent only the surface of potential tax and financial benefits available to companies committed to green construction. However, because the ability to claim tax incentives and credits for green projects often involves some pre-planning, certification or record keeping requirements, consulting with a professional tax adviser prior to undertaking a green construction project is advisable.

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www.azleg.state.az.us/ArizonaRevisedStatutes.asp
www.azcommerce.com/incentives.aspx
www.epa.gov/oust/fedlaws/publ_109-058.pdf
www.irs.gov/taxpros/article/0,,id=98137,00.html

Article written for AZRE by Kelly C. Mooney, J.D., L.L.M., who is a shareholder in the Tax Department at Gallagher & Kennedy P.A. She practices in the area of federal tax law, with an emphasis on the taxation of individuals, corporations, partnerships, tax-exempt entities, estates and trusts, and civil tax controversy matters.

www.gknet.com

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AZRE Magazine July/August 2010

money squeeze

Tips On How To Navigate The Current Credit Crunch

The credit crunch is making its way from Wall Street to Main Street and squeezing businesses across all industries. There are some proactive steps Arizona companies can take to prepare for potentially challenging days ahead.

Cash is king

If you have cash on your balance sheet, you have a greater degree of flexibility in your decision making.

Issue: In a slowing economy, understanding and managing cash flow are paramount.

Action Steps: Negotiate aggressive credit terms with suppliers and customers. As soon as invoices are late, begin subtle but firm collection efforts. In the short term, it may be wiser to sacrifice profitability in order to generate cash.

Be relentless on cost control

Look hard at discretionary expenses and remove unnecessary spending — but don’t compromise business strategy.

Issue: To maintain your current levels of profitability, you will almost certainly need to cut costs and spending where possible.

Action: Employ zero-based budgeting to review all costs carefully in terms of their value to the business.

Evaluate customers and suppliers

Understand the financial well-being of customers and suppliers. Look for signs of financial distress and express concerns.

Issue: Challenges in credit markets have put increased pressure on the purchasing power and credit worthiness of customers, resulting in a tightening of credit terms and product availability.

Action: Reevaluate credit terms with customers and negotiate the shortest reasonable terms.

Get smarter on taxes

It is important to look at how to manage those costs and the related impact on a company’s cash flow.

Issue: Taking appropriate advantage of the opportunities available to reduce tax liabilities.

Action: Take advantage of available tax credits, such as the fuel tax credit or deductions for domestic production or property depreciation. Take extra care when considering the calculation of quarterly estimated tax payments.

Reconsider capital investment plans

Is now really the time to invest in new capital assets?

Issue: Investing in new assets in a downturn can bleed you of cash. Carefully consider capital investment plans, and question the proposed value and timing.

Action: Take into account the timing of investments. If it isn’t mission critical, consider delaying or deferring.

Get closer to banks

Take a hard look at your reporting and accounting systems. If these are not quite what the bank would like to see, consider improving them.

Issue: Banks will be more cautious and concerned about credit quality. Borrowing will likely come at a higher price — both in terms of interest rates and fees — and will almost certainly include more restrictive covenants and require increased monitoring and transparency.

Action: Treat the bank as a partner by keeping it informed about the status of the business and giving it plenty of notice if you need help.

Consider financing options

Talk to a professional about arranging financing and consider alternatives to traditional lenders.

Issue: Having issues with your bank can result in a severe restriction in your borrowing capacity. It’s not as easy as it used to be to secure an alternative source of capital.

Action: Consider other financing sources such as leasing, asset-based lenders, factoring companies or even government-supported financing programs. Look at negotiating payments on long-overdue accounts receivable or obtain financing through trade vendors.

Keep an eye out for bargains

Be alert to opportunities where business valuations are falling and where business owners are looking for quick exits.

Issue: The current feeling of uncertainty will drive many shareholders to seek an exit rather than hunkering down and trying to weather the storm independently, creating buying opportunities at depressed prices.

Action: Whether playing the stock market, engaging in real estate or considering acquisitions, the best buys are made in a down market. But make sure the action makes sense with your growth plan.

Protect personal wealth

Before agreeing to become more personally exposed for the sake of the business and less diversified personally, think about options.

Issue: It is likely that businesses will have greater borrowing needs. Solving business cash needs with personal assets will reduce diversification of overall personal net worth and further expose you to the recessionary economy.

Action: Equity financing provides resources if the economy does not improve as quickly as expected. If debt financing is the best course, avoid personal guarantees and pledges of personal assets. Employ experienced counsel to help with the transaction.

Worst case scenario

Get help far in advance of a financial crisis, if at all possible.

Issue: The future is uncertain and trade credit is contracting.

Action: Look at your business without its existing debt and determine its debt capacity based on the most current financialprojections. Do not wait until you are almost out of cash.

The more time you have to identify your options and craft a plan, the better your chances of success. Contact your professional services advisors immediately to discuss your current situation.

Ed O’Brien is the managing partner of Grant Thornton’s Phoenix office. For more information, call (602) 474-3444 or visit www.grantthornton.com