The Inflation Reduction Act of 2022 is a massive piece of legislation affecting everything from energy to healthcare, and of course, taxes. Here are key elements of the bill that was signed into law this month and how they affect different types of organizations and individuals.
Large corporations
These provisions are the real headlining changes in the legislation. They will have a big impact on a very small and powerful set of companies.
- 15% alternative minimum tax for companies with $1 billion or more in total net profits over the three previous years. This replaces the previous (lower) alternative minimum tax. Begins in 2023.
- 1% excise tax on stock buybacks for companies looking to use this method of returning money to shareholders. Does not apply when the repurchased stock is contributed to an employer-sponsored retirement plan (ESOP). Begins in 2023.
Startups
The new policy has multiple components designed to support innovation.
- Increases the R&D tax credit maximum to $500,000 for companies that are less than 5 years old with less than $5 million in gross receipts. To reach that limit, you have to be a well-funded startup spending around $6 million per year on payroll, which does describe many companies in the biotech space, for instance. Begins 2023.
- Tax credits for alternative energy manufacturing designed to incentivize production of electric vehicles, wind, solar and battery technologies.
Individuals
The Inflation Reduction Act extends recent policies affecting business owners and also extends, restarts and introduces green energy tax credits for individual taxpayers.
- Qualified business income deduction extended through 2027 allowing business owners using “pass-through” entities to continue to deduct 20 percent of their business income.
- Net business losses limitation extended through the 2028 tax year, continuing the policy initially established in the Tax Cuts and Jobs Act of 2017 with a gradually increasing limit for entrepreneurs looking to offset business losses. (The 2022 limit is $270,000 for individuals, $540,00 for married couples.)
- Tax credits for green energy purchases and improvements including $7,500 over 10 years for purchases of new electric vehicles ($4000 for used), in addition to credits for solar panels, heat pumps and more. For the most part these begin in 2023 and may be subject to income minimums and/or maximums.
