Inflation Reduction Act: Everything you need to know.

$80,000,000,000 IS HEADING TO THE IRS. HERE’S EVERYTHING ELSE YOU NEED TO KNOW.

Health Premium Tax Credit

Household incomes that range from 100% to 400% ($40-150k for a household of six) of the poverty level now qualify for this tax credit through 2025 (previously set to expire in 2022). 

Solar Tax Credit

The IRA bill extends this tax credit through 2032. In 2023, this credit expands to battery storage tech (similar to Tesla's Power Wall) installed in your home. The tax credit equals 30% of the cost of equipment and installation. So if your bill comes to $50,000, Uncle Sam is giving you a $15,000 tax credit. It's important to note if this tax credit is "NOT refundable." So if you don't owe taxes, you're not getting the $15k in the form of a refund check. 

Energy Efficient Home Tax Credit

For 2022, It's back! But don't get too excited. They are capping the lifetime allowed credit at $500, and there are so many hoops you have to jump through to get this credit it's not worth listing here. However, if you're considering upgrading your windows, water heater, air conditioner, or adding skylights, it is worth paying a CPA $100 to research this credit and getting $500 back. That's a 5X return on your investment in a CPA. 

Energy Efficient Home Tax Credit (continued)

But wait, there's more! Starting in 2023 and continuing through 2032, the IRA removes some hoops you have to jump through and makes the credit equal to 30% of the costs. And move over the $ 500-lifetime limit, the new annual limit is $1,200 - and in some (rare, but possible) cases increases to $2,000!! There are still plenty of hoops, so best to consult with CPA before becoming a TurboTax hero. 

Electric Vehicle (Tesla) Tax Credit

Uncle Sam loves EVs so much that he will give you a maximum credit of $7,500 to purchase one. And in 2024, you can transfer that credit to the car dealer, and they'll apply the total amount to the purchase price of your new shiny EV. If you're still waiting on your EV pre-order, don't worry. This credit is slated to last at least TEN MORE YEARS. 

Business Related "Green Energy" Tax Breaks

There are a bunch, but it gets technical. Sustainable aviation fuel, clean hydrogen, purchase of "clean" commercial vehicles, and power-generating facilities with greenhouse gas emission rates "below zero." Below zero!? See what I mean. Siri doesn't even know how that's possible. 

R&D Tax Credit

Have you been in business LESS than five years and have gross receipts LESS than $5MM? If your answer is YES, a CPA can (maybe) save you $500,000 in taxes if you're heavy into research and development costs. 

Tax Increases

Who's paying for all this? Well, the short answer is you, the taxpayer. Tax credits are the government's way of influencing your spending behavior and having you pay for it. Sneaky, I know! 

15% Minimum Tax

Companies making over $1B will see a tax hike that will most likely get passed on to the little people (that's us). 

1% Tax on Stock Buybacks

Publicly traded companies get to deal with this new tax. Next...

Business Losses Writeoff

Loses up to $540,000 for some taxpayers are carried forward and used to offset future income. This cap extends to 2028.

What didn't make it in the IRA?

Your plumber and the person who cuts your hair need a professional license, but did you know the IRS doesn't require this from tax preparers? The IRA bill did not include any provisions for tax preparer oversite. I ALWAYS recommend using a Tax CPA, Tax Attorney or Enrolled Agent to do your taxes. So before you have some random person file your taxes, make sure and ask them if they are one of these three.

Upcoming Tax Deadlines

Partnership and S-Corp tax returns on extension are due September 15, and if you extended your individual income tax return, its due date is October 17. 

IRS Funding

The IRA is giving the IRS $80B ($8B/year for the next ten years) in NEW funding. The government wants a $204B return on their $80B investment. In other words, the IRS will ramp up audits to collect $204B. 

Here's the breakdown (it seems lopsided):

$47B for enforcement and collection measures

WE’RE TALKING 87,000 NEW IRS AGENTS

$25B for operations support (Processing returns and answering phone calls)

$5B for modern business systems (new tech and apps)

$3B for taxpayer services (helping you file your returns)

The government "promises" not to increase audit rates for anyone making under $400,000. So take it for what it's worth, and I'll refrain from getting political here. However, I will say that in an earlier draft of the IRA, they wanted to make this "promise" a "mandate," but the mandate was removed.

To be continued...