When The Inflation Reduction Act was passed in 2022 (IRA), it created a variety of new credits including Section 45X, the Advanced Manufacturing Production Credit, which benefits clean energy manufacturers and producers of certain minerals.
The goal of any tax credit is to incentivize investment in particular industries. However, a tax credit has traditionally been only useful for businesses with taxable liability. The IRA addresses this issue by providing alternative means for qualifying entities to benefit from the credit. Section 45X is one of the credits in the IRA that is eligible to be taken as a direct payment under Section 6417 or transferred to unrelated taxpayers under Section 6418. These options also allow those who may not be in a taxable position to still benefit from their investment in pushing the country’s domestic clean energy supply chain forward.
Which Option is Best for Your Business?
With options on how to benefit the investment in clean energy manufacturing, it’s best to understand what each is so you can choose the one that is right for your business.
- Direct Pay
The Elective Payment Election (Direct Payment) allows eligible tax-exempt and for-profit entities to elect to treat the 45X credit as a payment of tax. This election treats the credit as an overpayment and therefore available to be sent to client as a refund, giving businesses the opportunity to use the credit to further their investment in their business and clean energy. - Transfer of Credit
The IRA also allows those who qualify for 45X credits to transfer them to unrelated taxpayers. Eligible entities can elect to sell all or part of their credit for cash payments. This is a great way for those who may not meet the requirements to elect for direct pay to still benefit from the credit for cash they can use to propel their business. - General Business Credit
A general business credit may be the type most entities are familiar with. It directly lowers a taxpayer’s taxable liability, or tax owed. General business credits can be carried forward for 20 years, if the credit is greater than the taxable liability in the given year.
- Direct Pay
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Have questions on determining your eligibility for 45X and
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determine the best strategy for claiming and monetizing 45X Credits.