Did you read yesterday’s blog with information on how to plan for next year’s taxes with Green Tax Credits? We have more advice for your green tax plans today.

A wide variety of green/socially responsible credit and deduction strategies are readily available to taxpayers in the marketplace. However, many tax credit sales require a minimum purchase or investment of at least $50,000, or they require the investor to be accredited. Some tax mitigation strategies that taxpayers might want to be aware of include the following:

Green Building Credits: There are numerous federal and state programs that offer a green or sustainable building tax credit. Under most of these programs, a building owner may claim a tax deduction and/or receive a tax credit for expenditures made as part of a building designed to reduce the total annual energy used in the operation of the building.

New Markets Tax Credits: The government-sponsored New Markets Tax Credit (NMTC) Program was enacted by Congress on December 21, 2000, to assist with investments in targeted populations. These include low-income areas where there is at least a 20 percent poverty level and locations where median family income does not exceed 80 percent of the national level. The NMTC Program permits both individuals and corporations to receive a tax credit against federal income taxes for making qualified equity investments in qualified community development entities.

Low-Income Housing Credits: The federal and state tax credits generated from constructing low-income housing projects represent our government’s method of driving private capital into sectors of the economy needing investment. Such investment would not occur without financial incentives provided by government. Often, the developers of the affordable housing projects elect to sell these tax benefits as a way to enhance returns on investment or to provide additional liquidity. Many states offer low-income housing tax credits.

Film Credits: Film credits are offered in several states as a way to incentivize movie, television, and gaming production within those states. The belief is that the credits influence production to take place in the state, thereby resulting in significant spending within the state, employment of local people and companies, and other such benefits. Often the entity receiving the tax credit does not have significant income within the state that provides the credit. Therefore, selling these tax credits at a discount allows the receiving entity to generate a financial benefit. Many states have begun to consider reducing these tax incentives in an effort to capture the additional tax revenue.

Consider Credit Purchases as a Mitigation Strategy

Taxpayers should note that while they can often generate credit and deduction benefits from their own activities, they can typically more easily obtain these benefits by purchasing them in the marketplace. Numerous reputable tax credit firms (often structured as consulting firms or investment banks) exist in the market today, offering an array of legitimate tax mitigation products. While savvy accounting firms often have well-established credit and deduction resources, taxpayers can certainly reach out to these investment banking and consulting groups on their own.

Whether purchasing these credits outright or investing in a fund that results in tax benefits, the taxpayer is typically saving anywhere between 12 percent and 30 percent by using these mitigation strategies. In other words, a taxpayer may invest between 70 cents and 88 cents in order to receive a dollar in credit allocation. Clearly, this results in a significant tax savings, and, depending on when the taxpayer uses the tax benefit, may result in significant returns on investment.

Taxpayers are encouraged to work with a professional advisor with an expertise in tax credit programs, in conjunction with their personal or corporate accountant, to determine which federal and state programs might present significant tax savings based on their unique tax situation.

Proactive Tax Planning Through Green Tax Credits

Paying taxes. Just the thought of writing that check to the IRS tends to make the average American see red. However, I am shocked every year at the unfathomable number of individual and corporate taxpayers who pay significantly more tax than they would if they used readily available tax mitigation strategies. The reasons for this tax overpayment are many, including lack of knowledge or the belief that paying tax is one’s patriotic duty, to name a few.

One of my favorite quotes is from the Honorable Judge Learned Hand, who said:

Over and over the courts have said that there is nothing sinister in so arranging one’s affairs as to keep taxes as low as possible… for nobody owes any public duty to pay more tax than the law demands; taxes are enforced exactions, not voluntary contributions.

Have you exceeded your public duty?

It may be too late for your 2010 tax return, but you can already start thinking about how to offset your tax liability for 2011. Some commonly overlooked tax credits and deductions will allow you to keep your taxes as low as possible, while promoting sustainable and green objectives.

A wide variety of green/socially responsible credit and deduction strategies are readily available to taxpayers in the marketplace. However, many tax credit sales require a minimum purchase or investment of at least $50,000, or they require the investor to be accredited. Some tax mitigation strategies that taxpayers might want to be aware of include the following:

Renewable Energy Credits: Many federal and state deduction and credit programs are aimed at incentivizing taxpayers to finance renewable energy options. Renewable energy credits (also known as renewable energy certificates or RECs) are issued by a government agency to a power company that utilizes environmentally friendly methods to generate electricity. RECs can in turn be traded and sold on the open market, providing an incentive to companies that produce green power. Taxpayers who are trying to support green power and reduce their carbon footprint can also take advantage of RECs, regardless of the source of their power. Sources of green power include solar, wind, geothermal, biomass, biodiesel, some fuel cells, and low impact hydropower.

Conservation Credits: The federal benefits associated with conservation are established under the charitable contribution rules. These deductions offer a benefit by reducing taxable income at the federal level, and, for states that determine tax liability using federal taxable income, at the state level as well. In addition, there are over a dozen states that offer a state tax credit for conservation. Colorado, Georgia, North Carolina, and Virginia have the most robust programs for conservation. A taxpayer who invests in conservation alternatives, or who conserves land that he or she already owns, is able to help preserve natural resources and green space while simultaneously mitigating tax liability.

Come back tomorrow for Part 2 of How To Plan Ahead for Next Year’s Taxes with Green Tax Credits