Farming is deeply rooted in the seasons. Whether spring, summer, fall, or winter, there is plenty to look forward to.
But there’s one season that everyone dreads, and that, of course, is tax season!
Unlike the changing seasons, tax season doesn’t bring anticipation or excitement but rather demands meticulous planning and preparation to tackle the inevitable tax bill.
Farmers find themselves somewhat fortunate in this regard. Substantial investments in new machinery, while expensive, play a significant role in reducing their tax liabilities. But what if we told you there was an even more substantial, better, and more advantageous strategy than acquiring a shiny new tractor?
It’s true – there is!
If you’ve had a bumper year in farming (Colorado potato farmers – we’re looking at you!) and are wincing at the thought of the resulting tax implications, then this article is a must-read.
In a Nutshell
- Farm machinery might save on your tax bill but will become costly in the long run
- A $1 million farm equipment purchase can give you a 1st year ROI of 57%
- A $1 million solar investment can reach up to 77% ROI
- Solar continuously saves you money via vastly reduced energy bills
- Get a quote from 8760 Solar, then talk to your CPA
Why Farm Machinery Isn’t the Best Investment for Tax Deduction
Farm machinery has long been the agricultural industry’s favorite way to make an income deduction. You pay less tax and you get an efficient new vehicle to drive around your farm.
But here’s the thing, beyond the tax deduction, farm machinery doesn’t really save you money.
From the moment you use it on your property, it drops in value. For example, a report found that the value of a John Deere tractor can drop as much as 46% in only five years. And as equipment ages, it becomes more costly in repairs and maintenance.
What’s more, you may not even require a new piece of machinery, but the allure of reduced tax liabilities often pressures many farmers into making such purchases.
Fortunately, there is a better way!
Why Solar Energy is an Excellent Investment
Solar energy is quite literally the gift that keeps on giving!
Just like farm machinery, a solar installation can be written off as a business expense, so you get to keep your hard-earned cash instead of giving it away to the tax man.
You’ll also see in a moment that it gives you a much better and faster ROI.
Moreover, solar energy reduces your costs for decades to come.
How does an up to 96% reduction in energy bills sound?
That’s not just for one year, either. Solar panels have a lifespan of 25 – 30 years (often longer if well maintained), and although their efficiency drops slightly over time, you can still enjoy significant energy savings year after year.
Oh, and the icing on the cake is that in comparison to farm machinery, solar systems cost hardly anything to maintain.
Solar Energy vs Farm Machinery: A Quick Comparison
Let’s take a quick look at what the ROI is for both new farm equipment and a solar installation.
Let’s say you were to spend $1 million on farm machinery:
|Machinery total cost||$1,000,000|
|Expense off income (33%)||$330,000|
|Cost of machinery after tax incentives||$570,000|
With the expense of income and depreciation, you’re looking at a $430,000 reduction, giving you an overall ROI of 57%.
Not bad at all.
Now, let’s check out what a solar installation ROI looks like for the same amount:
|Solar installation total cost||$1,000,000|
|ITC tax credit of 30%||$300,000|
|Colorado Enterprise Zone tax credit of 3%||$30,000|
|1st-year depreciation of 33%||$330,000|
|Total amount of incentives||$660,000|
Straight away we see we have a 9% increase in ROI compared with farm machinery. But don’t forget, you can save up to 96% on your energy bills.
Let’s say your monthly energy bill is $10,000. If we reduce that by 96%, that means you’ll save $9,600 and your energy bill will only be $400!
Multiply that monthly cost saving of $9,600 over the course of the year and that’s a whopping total of $115,200 saved.
Adding that $115,200 value to the $660,000 worth of incentives outlined in the table above actually brings the ROI up to 77.52%.
Consider also that you will continue to enjoy those energy savings over the next 25+ years, which means you’re likely to get 100% ROI within a couple of years. And with energy bills set to keep rising, who wouldn’t want to keep saving?
We’ll also add here that the amount you save on energy bills can be a bit lower than this, and of course, energy bills differ from one farm to the next, but you can see that the ROI is still going to be more than that of a new piece of farm machinery.
How To Get Started
There are still a few months left of the current tax year to act and it’s not too late to start the process of having solar installed.
Before you get together with your CPA to review your end-of-year tax position, get in touch with 8760 Solar so we can provide you with a quote. This will allow you to understand how much you can save on your tax bill as well as how quickly you can expect your ROI.
Text “READY” to 719 470-0254 or get in touch via email: firstname.lastname@example.org. Let us help you make the most of your hard-earned cash!
Frequently Asked Questions
How Can Solar Energy Reduce the Operational Costs of an Agricultural Business?
Solar energy reduces operational costs by allowing agricultural businesses to generate their own electricity, while reducing or eliminating the need to purchase power from the grid.
These energy bill savings along with depreciation and tax credits allow farmers to quickly see a full return on their investment.
Are There Any Incentives for Colordao Farmers to Transition to Solar Energy?
The US government currently offers a REAP grant for up to 50% of the cost of the solar installation. There is also a 30% ITC tax credit, plus bonus credits if certain criteria is met. Colorado also has a number of tax credit incentives in place. Check out our full article to discover them in detail.
How Does the Cost of a Solar Installation Compare to the Long-term Savings?
The current incentives and tax credits coupled with the long-term savings from self-generating electricity are significant.
The ROI can be seen in as little as 1-2 years but will depend on the solar panel’s efficiency, the incentives qualified for, and the utility providers’ electricity rates and net metering policy.
How Can Solar Installations Benefit the Actual Farming Operations?
Beyond electricity generation, solar installations provide other valuable benefits. For example, solar panels can provide shade for livestock or sensitive crops and help retain moisture in the ground.
Additionally, solar-powered water pumps and irrigation systems can enhance water efficiency and reduce reliancy on the grid.
What Is the Lifespan of a Solar Panel Installation, and What Kind of Maintenance Is Required?
Solar panels typically have a lifespan of 25-30 years or more, though their efficiency may decrease slightly over time.
Maintenance is generally minimal, and usually consists of occasional cleaning of the panels to remove dust and debris and regular checks to ensure all components are functioning correctly.