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Inflation Reduction Act Expands Carbon Credits for Businesses

Choosing Your Carbon Credits

The Inflation Reduction Act of 2022 (IRA) has been called “the most significant climate legislation in U.S. history, offering funding, programs, and incentives to accelerate the transition to a clean energy economy.”

Renewable energy is a topic of ongoing interest and relevance to businesses, particularly because the IRA significantly expanded tax credits that incentivize carbon capture and storage. With most provisions of the IRA becoming effective January 1, 2023, businesses are starting to delve into what the tax incentives could mean for them, particularly if they are investing in new equipment and greener technologies.

Expanded Carbon Credits/45Q Credits
First introduced in 2008, Section 45Q of the United States Internal Revenue Code provides a tax credit for CCUS – carbon capture, utilization and storage/sequestration. When the IRA was passed in 2022, it introduced a significant stimulus for CCUS investment by expanding and extending the 45Q tax credit.

The IRA expanded 45Q tax credit values across the board by increasing the average value of carbon oxide geological sequestration from $50 per ton to $85 per ton — a 70% change. Some facilities utilizing direct air capture (DAC) could benefit from a credit of as much as $180 per ton. The law also lowers the carbon capture threshold requirements for certain facilities to benefit from the credit. Facilities meeting prevailing wage and registered apprenticeship requirements can qualify for bonus credits.

Direct pay is another attractive incentive. Carbon capture project developers can receive the 45Q credit as a fully refundable direct payment as if it were an overpayment of taxes.

Solar Energy Tax Credits
The IRA included several provisions intended to save small business owners money on energy costs. For example, small businesses can receive a tax credit that covers 30% of the cost of switching over to low-cost solar power. The White House says that this credit will help lower operating costs and mitigate the volatile energy prices that are currently squeezing small businesses.

Business owners can benefit from the expertise of an experienced CPA who understands how to fully maximize the use of IRA credits. The team at S.J. Gorowitz Accounting & Tax Services is well-versed in tax strategies specific to manufacturing and distribution, and we have counseled clients in a variety of industrial sectors on the optimal use of tax credits.

To discuss how the provisions of the IRA can benefit your business, please call us at 770.740.0797 or email us at info2@SJGorowitz.com.

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