Over the last two weeks in this space, I have written about some pieces of the recently passed Inflation Reduction Act.  I am not going to do much of that this time, but the rollout of the bill’s provisions (and some guidance that has already been put out there) shows that this goes beyond headlines and bullet points.

This is not a statement intended to place fault on anyone. Congress can pass legislation with a very clear desired outcome, but how that outcome is going to be achieved is a more boots-on-the-ground operation than any wording of legislation.

So now, there will be some choices made as to how the IRS institutes some of these new tax credits included in the bill.  So now, the IRS will have to choose exactly how it spends the new money that it will receive because of some of what is in the bill. And also, it is naïve to think that the first answer given to these concerns is going to be the final answer.

Because again, once you start putting things into actual practice, new wrinkles are found …

So what does this really mean?

The biggest thing that I want to point out here is that when things this big (and frankly, important) happen, you cannot just take an initial headline and think you have all the answers. Especially when it comes to large pieces of legislation like this, you may be able to summarize what is included in one page, but the actual bill is many, many pages and those pages of details do matter when it comes to implementation.

This is not to then say that if you want to take advantage of some of these new tax credits that you must be diligently scouring the news so that you can do it correctly. Rather, this is a call to understand that there are people who are doing that work, there are people who will be keeping up with what has to happen to make it work for everyone. This is a bit of a trite comparison, but if you’re having heart surgery, you want it to be done by somebody who has a lot of expertise in heart surgery. It does, however, show that there is value to trusting in the knowledge of others.

So this will all shake out in time, there will be people who can help you navigate when you need to, and as always, do not be afraid to reach out when you need help with that navigation.

Warmly,

Josh Bousquet
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I wrote last week about the Inflation Reduction Act just from the perspective of the IRS getting more funding for audit enforcement. Of course, that was a LOT more in the bill, though, so I wanted to hit on some of its tax provisions this time around.

First, it should be noted that nothing in the act is designed to increases taxes on small businesses or families making $400,000 or less a year. Instead, the biggest tax impact is expected to be on very large businesses, those with more than $1 billion in reported income. These companies will now be subject to a 15% minimum corporate tax rate. There will also be a 1% excise tax instituted on corporate stock buybacks.

Although this is not designed to increase taxes on families making less $400,000 or less a year, there are not provisions in the bill that could actually decrease their taxes owed.. One of these simply extends the expanded Affordable Care Act program through 2025, allowing more people to claim that refundable tax credit.

Action against climate change was a big part of the bill, and some of this is reflected in tax credits, as well.  This includes clean energy tax credits for things such as solar projects and energy-efficient water heaters, heat pumps, and HVAC systems. The one that will probably garner the most attention in coming years, though, are credits for electric, and other “clean,” vehicles.

Granted, these are credits that only apply to very specific situations. They are not the type of tax change that is going to unilaterally and automatically affect a large number of people. They are still worth mentioning, though, for they could very much enter the calculus of making some improvements and/or purchases that you had already been contemplating. And if you can now receive a pretty sizeable credit for something you were already thinking about, that math may all of the sudden work.

And just a little note from last week: In that blog, I mentioned $80 billion was going to the IRS for audit enforcement. The agency will be receiving that amount in total, but it is not all earmarked for enforcement. That amount is only $45.6 billion, with $25.3 billion for operations support, $4.7 billion for business systems, and $3.2 billion for taxpayer services. To put this in perspective, the annual budget of the IRS has only been in the $14 billion range total.

Warmly,

Josh Bousquet
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Possibly surprisingly, one of the attention-grabbing pieces of the large Inflation Reduction Act just signed into law is the IRS getting a total of $80 billion to increase audit enforcement. Not surprisingly, both sides of the political aisle have arguments as to how this affects their base. Does this mean regular middle-class taxpayers should be afraid of being audited? Does this mean that upper-class individuals and businesses are finally going to be held to account for taxes they should pay?

My take on it is that the answers to any of those specific questions does not matter here. After all, no one is actually (legitimately anyway) saying that a strong-armed agency is going to push people into paying more taxes than they should. This is money allocated to helping the IRS do its job better, not to do any type of new job.

Granted, what rules the IRS are enforcing are still (and always open for debate). But once those rules are in place, shouldn’t people and businesses abide by them?

So behind the rhetoric, the idea behind increased audit enforcement is attempting to force people to report legitimate tax returns. Even if as one of those prototypical Regular Joes you get audited, if you have submitted a return that follows the rules, then that audit should not cause much worry. Yes, it’s going to be stressful, yes, there’s not going to be a lot of fun moments in the process, but yes, you can back up what you did and not run into a big surprise at the end.

If you then, or anyone you know, is THAT worried about what this could mean for them, then instead of looking at it politically, maybe it is time to look at how you handle your taxes. If you do your taxes yourself and therefore do not have a professional level of confidence in them, there are a lot of people with expertise out there who can help you (we might even know one, hint, hint). If you do not do them yourself and still don’t have the confidence, well, there are lots of different people with expertise out there who can help you (and guess what, we still might even know one).

Beyond that idea, remember all the stories about how behind the IRS is behind on just doing its regular work of getting through tax returns? To think an injection of money is suddenly going to change how it goes about its work, turning it into some superpowered entity ready to take off in a new direction, is probably naïve.

In conclusion, this should only worry you if you have reason to worry. And if you have reason to worry, the best way to handle it is by getting ahead of things now and changing how you operate.

Warmly,

Josh Bousquet
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Getting an extension on your tax return feels like such a boon when it happens. They often come just when you feel the April deadline looming large and suddenly that dreaded day gets pushed back six months. That is such a long time that it becomes difficult to feel that filing is a necessary task. After all, how many things are you actively planning that are happening half a year in the future?

But get this, just because your deadline is now in October, that doesn’t mean you have to wait until the spooky month comes to start working on your extended return.

First off, I want to state how getting an extension should not be immediately worrisome. The ability to get one exists for a reason and the ease with which it can be obtained shows it is not some out-of-this-world tricky tactic. In fact, there are roughly 19 million taxpayers who filed an extension this year.

Many of these happen due to legitimate circumstances. Sometimes things come up in life that throw us into disarray and getting your taxes filed then cannot (and should not) stay atop the to-do list. Sometimes there are issues with tax forms, or you didn’t even receive them, so you can’t file a complete and legitimate return until that is worked out.

Of course, sometimes doing your taxes just is not fun, so one procrastinates, and suddenly you have run out of time without really starting

No matter where you fall among these scenarios, though, it is time to start putting some thought into making this happen. If you had some issues you were battling through, hopefully they have eased enough that now you have the time to take this other task off your list.

But mostly this is a reminder for those who just did not get things done in time. Remember how pressing things felt back in April when you knew you wouldn’t finish by the original deadline? You do not have to feel that way again. And sure, you still have more than two months to go before the new deadline hits, but why wait to complete something that you don’t have to wait to do? Chances are you have at least SOME things together already when it comes to gathering your information, so it will not that THAT long to finish that up. So let this serve as cheering you on to continue doing so and get to that endpoint even before the real endpoint comes.

​Warmly,

Josh Bousquet
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