Inflation Reduction Act
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.
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