The Inflation Reduction Act of 2022 was put in place to fight inflation, invest in domestic energy production and manufacturing, and reduce carbon emissions by roughly 40 percent by 2030. The Act was passed by the Senate on August 7th, and most tax provisions become effective at the beginning of 2022.
The following points are the tax highlights of some of the main points from the Inflation Reduction Act of 2022:
The bill will also finally allow Medicare to negotiate for prescription drug prices and extend the expanded Affordable Care Act program for three years, through 2025.
Creation of a 15% corporate minimum tax rate:
- A 15% alternative minimum tax on adjusted financial statement income of corporations (excluding S corporations, regulated investment companies and real estate investment trusts) with profits over $1 billion. The AMT will only apply if it exceeds a taxpayer’s regular tax for the year and is only expected to be levied on the larger corporations in this country.
Excise tax on Stock Repurchases:
- A 1% stock buyback excise tax based on the stock’s repurchased fair market value. The goal is to influence corporations to issue dividends instead of repurchasing outstanding shares as a way of increasing their stock price.
IRS tax enforcement:
- Increased funding for the IRS to close the tax gap and improve enforcement and customer service.
Passthrough Loss Limitations:
- The Act extends the excess business loss limitation through 2028.
Modification to Electric Drive Motor Vehicle Credit:
- Increases the dollar limit on the new qualified plug-in electric drive motor vehicles credit if certain minerals and battery component requirements are met.
Energy security and climate change investments:
- The credit for nonbusiness energy property that expired at the end of 2021 was modified and extended through 2032. Modification include changing the credit rate to 30% and replaces the $500 limit with a $1,200 annual limit. The bill also includes numerous investments in climate protection, including tax credits for households to offset energy costs, investments in clean energy production and tax credits aimed at reducing carbon emissions.
Increasing Research Credit:
- Increasing the Research Credit against payroll taxes for qualified small businesses from $250,000 to $500,000.
Expands Medicare benefits:
- Free vaccines (2023), $35/month insulin (2023) and caps out-of-pocket drug costs to an estimated $4,000 or less in 2024 and settling at $2,000 in 2025.
Lowers health care costs:
- Saves the average enrollee $800/year in the ACA marketplace, allows Medicare to negotiate 100 drugs over the next decade, and requires drug companies to rebate back price increases higher than inflation.
The above is a summary of the tax highlights of some of the main points from the Inflation Reduction Act of 2022. Contact your Rudler, PSC advisor with questions or for assistance with these or other tax matters at 859-331-1717.
RUDLER, PSC CPAs and Business Advisors
This e-Tip is presented by Matthew Topmiller, CPA.
If you would like to discuss your particular situation, contact Matt at 859-331-1717.
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