On Tuesday, August 16, 2022, President Joe Biden signed the Inflation Reduction Act into law with many details yet to be determined related to its implementation. The topics in the bill range from green energy incentives to medical costs to electric cars and IRS enforcement. The plethora of topics can make finding pertinent information difficult, so we have selected some of the most important implications for individuals and small businesses.
Increased tax incentives for electric vehicle purchase
In recent years the push for more electric vehicles has increased. The Act appears to increase the volume of vehicles eligible for U.S. manufacturers to sell to buyers interested in receiving the current electric vehicle tax credit which may be as much as $7,500. However, it is no longer available to everyone. New restrictions limit the credit based on income level, vehicle price, and USA-based manufacturer.
Solar panel tax incentives
A new solar panel installation tax credit includes eligible homeowners and an expanded list of investment and commercial property owners, and developers. This credit allows for a 30% tax credit in the year that the solar panels are purchased and installed with no apparent limit on the size of credit.
Additional funding for IRS Enforcement
The IRS is gaining increased funding from the Federal Government. Approximately $45.6 billion will go towards enforcement, $25.3 billion for operations support, $4.7 billion for internal systems, and $3.2 billion for taxpayer services. The additional funding is not supposed to increase the number of audits for individuals making less than $400,000 but is instead intended to focus on high-earning individuals. Hopefully, the additional funding will increase the efficiency of the IRS and decrease wait times.
Medical expense cap and drug negotiations
Two significant changes occurred related to medical costs. Annually, the government will be negotiating with pharmacies to lower the price of 15 common drugs. In addition, the out-of-pocket expenses for people on Medicare will now be capped at $2,000 per year.
Research and Development credit increase
For 2023 and beyond, the R&D credit will provide an increased refund for eligible payroll tax expenses. This change may benefit startup companies and companies that are working in innovative fields that have not begun to see significant income tax costs for profits that have yet to materialize.
The Inflation Reduction Act has implications that we did not cover since they relate to a small percentage of corporations and extremely high income earners. If you have any questions or want to explore some of these credits please contact us and we would be happy to help you explore your options.
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