Taxes may be a dry topic, but if you want to save money with solar, this is a very important post for those who want to know about solar incentives. Please read on. I’ll start at the beginning. Jump ahead if you don’t need answers to the first few questions. And see the glossary of tax terms at the bottom of this post if you’d like some key terms defined.

Do I pay taxes?

People investigating solar regularly say to us, “I can’t take advantage of the federal tax credit on solar because I don’t pay any taxes.” When we ask if they’re sure they don’t pay taxes, since the majority of Americans do, they say they always get a refund from the IRS at the end of the year.

If this sounds like you, I’d like to share a very important point: Even if you get a refund from the IRS at the end of the year, you probably paid taxes throughout the year through automatic deductions from your paychecks. The reason you get a refund check is because the IRS took more money from your paychecks than necessary. You get a refund because you paid too much in taxes during the course of the year.

But you are still paying taxes.

What are federal tax credits for solar?

The biggest of all solar incentives for installing a system on your property is the federal tax credit that pays you back a part of your system price. Let’s say your system cost $38,462, a number I pick because 26% of the federal solar tax credit in 2020 from that is almost exactly a nice, round $10,000. So if you bought that system in 2020, your tax credit would be $10,000. Here are some examples of what happens to that $10,000 in various situations. (Note, if you’re here because you’re planning on a tax credit for a system you installed in 2021, your credit would be 26%).

In the first example, you’re getting a refund from the IRS because you paid too much in taxes. Let’s say the IRS withheld $19,000 in taxes from your paychecks, but you only owed $14,000 in taxes for the year. Normally, you would get a nice $5,000 refund check from the IRS. But, when you add in your $10,000 solar tax credit, your refund check becomes a big, fat $15,000 payment. Isn’t this fun?

In this next example, I assume you owe taxes at the end of the year — $13,000 to be exact, because you should have paid $30,000 in taxes but only $17,000 was withheld from your paychecks. Normally, you would send the IRS that remaining $13,000, painful though that is. But, because you have a $10,000 tax credit, you only have to send the government $3,000.

OK, you’ve got my attention. How do I know how much I’m paying in taxes?

The easiest way is to look at your federal tax filing. Where to look depends on which form you filed (and of course sometimes on the year of the form you’re reviewing). These images show you where to look on the three most typical tax forms from the past, but the key is to find the line that lists your “Total Tax”. And of course, you can always ask your tax professional.

Have a look at last year’s tax return to clarify what you paid in taxes. Then give us a call to see what size solar energy system you need, and we’ll estimate the tax credit you’ll get if you go solar.

How do I get my solar tax credit?

It’s simple. Contact us to get a free solar proposal, which will include the amount of your solar tax credit. Have solar installed, and then apply the tax credit to your next tax return. Solar incentives are awesome. 

Disclaimer: We are not tax advisors and do not pretend to offer tax-related counsel. Please consult your accountant to determine what impact the solar tax credit would have on your taxes, plus any other topics addressed in this post.

Tax Terms