The Inflation Reduction Act of 2022, was signed into law by President Biden on Tuesday, August 16, 2022. The Inflation Reduction Act of 2022 (The Act) will raise revenue, reduce the deficit, make major investments in healthcare, climate change initiatives, and provide additional funding to the Internal Revenue Service.
The tax related highlights include:
- 15% corporate alternative minimum tax
- Excise tax on repurchases of corporate stock
- Extension of the business loss limitation of noncorporate taxpayers
- Tax credit changes and tax credit additions meant to increase investments in green technologies
- Additional funding to the IRS for tax enforcement, taxpayer services, and modernization of systems
The 15% Corporate Alternative Minimum Tax
The Act provides a 15% alternative minimum corporate tax for tax years beginning after Dec. 31, 2022. It applies only to corporations with profits over $1 billion and some foreign-owned corporations with profits in excess of $100 million. The alternative minimum tax imposes a 15% tax on adjusted financial statement income, which is not the same as federal taxable income.
Excise Tax on Stock Buy Backs
The Act now includes a new 1% excise tax on the fair market value of stock repurchased by a publicly traded U.S. corporation during the taxable year and will impact redemptions and certain acquisitions and repurchases of publicly traded foreign corporation stock. The new excise tax would apply to repurchases of stock after December 31, 2022.
Extension of Limitation on Excess Business Losses
The Act implements a two-year extension on the limitation of excess business losses of noncorporate taxpayers until December 31, 2028. Remember that the excess business loss in the current year becomes a net operating loss in the subsequent years and can offset 80% of taxable income.
Credit Changes and Clean Energy Tax Credits
The Act includes numerous energy and climate change incentives which include tax credits for purchasing new and used electric vehicles, residential energy property credits, credits for producing energy from renewable sources, clean hydrogen, and zero-emission nuclear power.
Increase in Research Credit against payroll tax for small businesses (defined as a business with less than $5 million in gross receipts and is under five years old). The increase goes from a credit of $250,000 to $500,000 to be applied to its payroll tax liability, beginning for taxable years after December 31, 2022. The credit is limited to the tax imposed for any calendar quarter, with the unused amounts being carried forward.
The Act also includes a provision to modify the 179D, Energy Efficient Commercial Buildings Deduction. These modifications include changes to the building qualifications for the deduction in addition to increasing the potential deduction from $1.88 per square foot up to $5 per qualified square foot.
The Act will extend the 45L, New Energy Efficient Home Credit, through 2032, increase the value of the available credit for single-family homes to $2,500 and modifies the credit available for multi-family homes.
Increased Funding for the IRS
The Act allocates $80 billion in funding for the IRS over the next 10 years for taxpayer services, operations support, business system modernization, and enforcement. It is estimated that $124 to $200 billion will be generated by the enforcement and compliance efforts during that decade.
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