The Inflation Reduction Act of 2022 (IRA) passed in both the Senate (August 7, 2022) and the House (August 12, 2022). IRA is a much scaled-back version of President Biden’s Build Back Better Plan (BBB), blocked by Senators Joe Manchin, Krysten Sinema, and all 50 Republican Senators.
Many of the BBB Plan’s tax provisions that our clients feared were removed from the IRA. Items removed include an increase in capital gains tax rates, increased corporate income taxes, millionaires excise tax, and other targeted tax increases for those making over $400,000.
The tax changes in the IRA probably will not impact most taxpayers reading this letter. Those include:
- A 15 percent minimum tax on corporations with financial statement income of over a billion dollars (not any of our clients)
- A one percent excise tax on stock repurchases
- Extension of the excess business loss limitation through 2028
- Extension of Affordable Care Act (ACA) provisions contained in the American Rescue Plan. Mainly impacting taxpayers positively that are enrolled in an ACA plan with incomes over 400 percent of the federal poverty line
- and too many green energy credits to discuss
The most notable changes for our clients will be the increase in the cap for residential energy credits to $1,200 per year from a lifetime cap of $500. Also, the $7,500 clean vehicle credit has changed with the removal of the limitation on the number of vehicles produced for a vehicle to be eligible for the credit (think Tesla). In addition, a new $4,000 credit is available to purchase a used clean vehicle.
While it appears that we have escaped many of the tax increases that we had feared, $80 billion of the proposed bill will go to the IRS, which includes $46 billion going specifically for more enforcement agents. Treasury Secretary Janet Yellen has sent a letter instructing the IRS not to increase audits on small businesses and households earning less than $400,000. Time will tell.
The good news is maybe the IRS will start answering their phones and process the 21.3 million unprocessed paper tax returns so that we can assist our clients.