Death and taxes are two things we say we cannot avoid. However, in the case of taxes, the IRS has long been a tool our government has used to help business people make decisions regarding investments. When it comes to investments, there is a great way to avoid paying taxes, and that is by investing in solar, due to solar being incentivized by tax savings.
Our government policies have long favored investments into solar electric generation. It is simply good technology that needed a kick-start to get up to the volumes needed to bring the pricing in line where it will expand on its own merits. This policy has worked, and with very little actual contributions from government agencies, with the exception of the afore-mentioned tax credits.
The Investment Tax Credit, or business tax credit 3468, is a general tax credit that has been used for many things over the years, from oil depletion allowances to re-forestation. As it stands in 2019, it can be used to offset taxes due for any reason, down to paying all of your taxes to zero (even Alternate Minimum Tax). If you do not have enough tax liability to absorb all of your tax credit in the year the solar system was installed (signoff of a completed system by the local jurisdiction is the tax event date), you can carry it forward 20 years and back one year. That means you can have a big tax liability for 2018, invest in solar in 2019, then restate your 2018 taxes and get a refund check from the IRS up to the full amount of the ITC you were able to claim.
All accounting firms are well aware of 3468 and the rules specific to solar. At the end of 2019, the 30% tax credit is set to be reduced to 26%. Beyond that, it will continue to go down until it reaches 10% where it is slated to stay until further notice.
With regards to depreciation, existing federal tax laws allow you to depreciate the entire system the year it is installed and the State of California allows you to depreciate it using a MACRS schedule, over 6 years.
Since in a general sense the numbers scale linearly, you can take the following example and do a ratio from your electric bill to see how much money can be diverted from paying taxes into a long term investment. If your annual electric bill is $25,000, you can approximately cut all of these numbers in half, or more accurately, (Your annual electric bill/$53,468.) times any of the other numbers such as tax credit, initial system investment, etc. This will get you close, but there are many other factors such as electric rates, time of use, available roof space, economies of scale and market conditions that require a hard proposal to get more accurate and real life investment scenarios.
The point of this article is to show you that investing in solar is a great way to pay less in taxes. Take the money you would have otherwise paid in taxes and invest in a solar system. The fact that there is 100% financing available for solar, no matter what your credit is, means it can also be a great tool to get help with your cash flow.
The deeper you dig into investing in solar, the better the news becomes.