President Joe Biden has finally signed the Inflation Reduction Act (IRA) of 2022 into law to reduce inflation. For some, it’s the government’s move to curb inflation, but it means more, from fighting climate change, providing support for solar energy, and increasing taxes for big corporations. In addition, the new tax levy will be a significant shift for corporate companies, especially those without virtual tax preparers who can provide the best tax-saving strategies.
Inflation is nearing its highest level in four decades, and every American is complaining of high gas bills and the high cost of living. While the Inflation Reduction Act is a laudable move by the Biden administration, it also sparks many questions: Will it reduce inflation? Will it reduce hardship in many American homes? Will virtual tax preparers be able to reduce the higher tax rates? Here’s what the Inflation Reduction Act will mean for many Americans.
Health Care
Reduce drug prices for Seniors: the IRA allows Medicare to negotiate lower drug prices with drug companies. It provides an annual $2000 cap on drug costs for seniors who receive Medicare starting from 2025. Americans don’t have to pay 2 to 3 times more than people in countries for the same drug. In all, this would save Medicare beneficiaries about $1,000 yearly. A win for both you and your virtual tax preparer.
Lowers healthcare cost: the IRA will enhance affordable healthcare for 13 million Americans by extending the Affordable Care Act from 2023 to 2025. As a result, the average beneficiary will save about $800 yearly on premiums. The act will also prevent 3 Million people from being uninsured, ultimately reducing the uninsured rate in America.
Cutting down pharmaceutical exploitations: the IRA prevents pharmaceutical companies from hiking prices above the inflation rate by requiring them to rebate back the difference if they increase drug prices higher than the inflation rate. Your virtual tax preparer will tell you that Americans won’t feel this until 2026, but the government will start bargaining the price charged for the top 10 most used drugs with pharmaceutical companies by 2025.
Energy:
Clean energy and climate change mitigation: the IRA has shown unparalleled support for the transition to sustainable energy by earmarking $369 billion for clean energy and climate change initiatives. This initiative focuses on creating clean energy opportunities in the frontline and fenceline communities that have been smothered by the legacy of pollution to fight environmental injustice.
The IRA is expected to reduce Green House Gas emissions by about 40% by 2030. In addition, the IRA creates a $5.8 billion Programme that will run till September 2026 to invest in energy-intensive industries.
To disincentivize Methane Emissions, the IRA provides $1.5 billion to the Environmental Protection Agency (EPA), under the Methane Emission Reduction Program, to monitor methane reduction efforts and impose a penalty on methane emissions above 25000 metric tons of CO2e gas.
There’s more. A $9 billion home energy rebate program encourages people to use electrified home appliances. It provides 10 years of consumer tax credits that make energy-efficient appliances such as heat pumps, rooftop solars, electric HVAC, and water heaters more affordable.
There’s also the $4,000 consumer tax credit for middle to lower-income earners that buy used electric vehicles. More so, there’s a $7,500 tax credit for buying new electric vehicles and a $10 billion investment tax credit for new manufacturing facilities that produce clean techs such as wind turbines, solar panels, and electric cars. These tax credits are a big win if you have an expert virtual tax preparer that can help you claim them.
15% Book Minimum Tax
This is the part every business owner is worried about, especially business owners without expert virtual tax preparers. Effective December 31, 2022, the IRA imposes a 15% book tax on corporations that make more than 1 billion annually, bringing in over $300 billion in revenue for the government.
The tax imposition targets the Adjusted Financial Statement Income (AFSI) of relevant corporations. In essence, this new book tax targets companies reporting significant financial statements income but paying little to no tax. The bill is set to fix the loophole that allows wealthy hedge fund managers to pay lower taxes than average-income Americans. The 15% minimum book tax also makes it impossible for large corporations to have a zero tax bill.
The 15% minimum tax could affect up to 150 companies. Right now, many companies are trying to figure out whether they could be among the 150 and the significant implication of the new law on their tax liability according to the analysis of their virtual tax preparer.
To further enforce this new tax law, the IRA has also increased the Internal Revenue Service(IRS) budget by about $80 billion over 10 years. This new provision will ease the burden of the IRS, allowing the IRS to become better staffed and more efficient.
What Does The Tax Reduct Act Mean For Americans?
Although the legislation won’t directly affect some of the main drivers of inflation, such as food, gas, rent, and restaurant meals, The IRA would directly impact the lives of Americans by making health care and energy more affordable. It will also reduce pollution, encourage fairer taxes, create jobs, and cuts the deficit to reduce inflation.
The bill also includes several tax credits, such as the Investment Tax Credits (ITC) and the Production Tax Credits (PTC), as well as financial incentives targeted at providing a more accessible clean energy consumption, especially for middle to low-income earners. For example, Americans no longer have to spend enormously to buy electric cars and solar panels because the IRA includes incentives driven by major emission reductions. Asking your virtual tax preparer about rebates, such as the $2,500 rebate for upgrading electrical wiring is also one of the ways you can benefit from the IRA.
Take Home
While the IRA offers enormous advantages for taxpayers with efficient virtual tax preparers like Tax Goddess, it’s also a cause for concern for corporate companies that will be required to pay higher taxes. If the new book tax is a cause for concern for you, like many other business owners, then it’s time to consult the Tax Goddess Team to help you look into the loopholes and help you reduce your corporate taxes to the barest minimum legally.
