A new market for tax credits is forming based on the Inflation Reduction Act. Bankers and attorneys are determining how to transfer these credits from the companies that generate them to profitable enterprises that can take full advantage of them.
The Inflation Reduction Act expanded renewable energy credits and made them transferable. Many of the green energy firms that generate these credits aren’t profitable and don’t need them in the first place.
They will now be able to sell those credits at a discount to other firms in no way connected to the green energy businesses. These deals won’t begin until the 2023 filing season.
This opens a tax planning opportunity for many.
Let’s say you operate a business as an S-Corp with a significant profit that flows through to your personal return. Let’s also say that your Federal Income Tax burden is $200,000.
You would be able to purchase $200,000 in green energy credits at a discount of up to 10% to eradicate any federal income tax burden. If you live in a state that levies income tax, it might also alleviate any state income tax bills.
This would all be done with the stroke of a pen. You wouldn’t have any of the hassles and risks of manufacturing solar cells or wind turbines. Since the company you bought them from probably didn’t have a profit, it would be a win win for everyone.
Let me leave you with this.
The word hypocrite has always interested me. It comes from the fourth chapter of Matthew, where the Pharisees were being hyper critical of Jesus’ ministry, hence the derivation of the word.
The new administration pushed through the Inflation Reduction Act with the idea and purpose that higher income individuals and larger corporations should pay their “Fair Share” of income taxes. The bill states specifically that large corporations should pay tax even if they lose money in a given tax cycle.
But that obviously isn’t true given the ability to purchase these tax credits..
Let’s not act like making these energy credits saleable was some sort of legislative oversight or snafu. Originally the bill called for direct payments from the government to the firms generating these energy credits, but Senator Joe Manchin (D. W.Va.) objected.
Given his swing vote, the bill was changed to make them saleable to anyone who can write a check. And here we are.
Somehow the word hypocrite comes immediately to mind.
We’re all going to get through this. Let’s get through it together.
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