How Tax Strategy Works
The Solar Business Strategy for Infinite ROI!
If something sounds too good to be true, it’s likely a scam.
When it comes to tax strategies, that generally holds true.
What is a tax strategy, and how does it work?
I think of it as having two general approaches:
Using existing tax rules to lower your tax bill.
One simple example is converting non-deductible personal expenses, like a vacation to Hawaii, into deductible business expenses. This type of strategy may cost nothing, meaning the return on investment (ROI) can be infinite.
Spending money to create tax deductions.
Spending strategies generally require you to spend out-of-pocket money to generate tax deductions that exceed the investment. However, a well-planned spending strategy allows you to use not your own money, but only the IRS’s money to create a tax benefit. That said, the benefits are usually not as high as traditional investment returns, such as the historical 9% ROI from the S&P 500.
Let me share one spending strategy where you can use the “IRS’s money” to generate approximately an overall 30% return over six years. This strategy is ideal if you:
Are in a top tax bracket
Live in a high-income tax state (e.g., California)
Strongly dislike paying the IRS and are willing to invest 100 hours annually to turn what you would have paid in taxes to the IRS into owning a solar business.
The Solar Business Strategy
How It Works
Assume your medical business has a federal income tax liability of $200,000 (meaning you earn about $1 million). Normally, you would make four estimated tax payments of $50,000 to the IRS—and just like that, $200,000 is gone with the wind!
Instead of handing over $200,000 to the IRS, you redirect that money to create a solar panel business.
There are companies—let’s call one Solar Coordinator—that help manage the entire process for you, as follows:
Finding Homeowners
Solar Coordinator identifies homeowners who want solar panels but do not want to purchase them outright.
Solar Coordinator signs an agreement with the homeowner, arranging for the solar panel purchase and installation.
Setting Up Your Solar Business
Solar Coordinator assists you in creating an LLC where you are the sole owner (let’s call it My Solar LLC).
With the help of Solar Coordinator, My Solar LLC purchases the solar panels and has them installed on the homeowner’s
Funding the Solar Panel Installation
Assume the solar panels cost $30,000.
You, as the LLC owner, contribute $10,000 (remember, this is the IRS’s money).
The homeowner prepays your LLC $20,000 for 20 years’ worth of electricity that the panels will generate.
The $30,000 system is installed with the help of Solar Coordinator via contractors.
The Tax Benefits
The tax benefits come from federal tax credit and depreciation.
Your LLC receives a one-time tax credit in Year 1 of approximately 38% of the system cost (based on the average).
$30,000 × 38% = $11,400
The $11,400 tax credit offsets the $10,000 you owe to the IRS, meaning you created a $1400 in tax benefit out of thin air.
Your LLC can also depreciate the solar panels over six years, totaling $24,300 in depreciation, which provides a tax benefit of $7776 (assuming 32% federal tax rate, calculated as $24300 x 32%). Additionally, you are entitled to a state-level depreciation deduction.
The Downsides
In Year 2, you must report approximately $20,000 received from the homeowner as taxable income. This results in a tax cost of $6,400, calculated as $20,000 × 32%. Part of the $6,400 tax liability will be offset by federal-level depreciation. Additionally, you will be taxed at the state level, but this will also be partially offset by state-level depreciation. The good news is that even with these tax obligations, the tax benefits from Years 1 and 2 still exceed the tax liability in Year 2.
You must spend at least 100 hours per year managing the solar business to use the deductions to offset your other income. If you invest $200,000 (again, using the IRS’s money), you could own 20 sets of solar panels, making it fairly easy to meet the 100-hour requirement.
Is It Worth It?
If you are using $200,000 of IRS money to invest in solar, you could generate approximately $60,000 in tax benefits over six years.
While $60,000 over six years may not seem like a huge return, the ROI is technically infinite since you invested zero of your own money.
I believe this strategy is worth considering if you have a $100,000+ tax liability to allocate toward solar business ownership and are willing to invest the required time to manage the business.
Final Thoughts
This is a well-established strategy with a long-standing track record, used by many Fortune 500 companies and codified in the tax code under IRS Sections 38 and 46.
If structured correctly, this approach allows you to convert tax payments into business ownership, transforming money that would have gone to the IRS into an income-generating asset.
Let me know if you would like to explore this strategy further.