All You Need to Know About Inflation Reduction Act
Climate change is the next big challenge the globe is about to face. To combat it, we must collectively stand beside it to prevent its adverse impact. President Biden took this matter into serious consideration by enacting the Inflation reduction act. On August 16, 2022, he signed into the inflation reduction act to lower inflation by investing in domestic energy production and reducing healthcare drug costs. Notably, this act is a scaled-back version of the prior Biden administration proposals originally included in the Build Back Better Act.
There are a number of significant legislations in the inflation reduction act. These legislations include: substantial green energy incentives, reduction of Affordable Care Act insurance premiums, IRS funding, corporate minimum tax etc. The purpose of designing this legislation is to prevent large corporations from exploiting tax loopholes to avoid paying little or no income tax.
In this article, we will discuss the inflation reduction act legislations that will be helpful to all taxpayers.
15% corporate minimum tax rate:
If your corporation earns at least $1 billion, it will be required to pay a minimum 15% tax rate. This provision is projected to raise $258 billion over 10 years. However, this provision excludes S corporations, regulated investment companies, and real estate investment trusts (REITs).
Drug pricing reform:
The drug pricing reform is significant legislation that allows Medicare to negotiate the pricing of prescription drugs. That is, the medicare recipients will get a $2000 cap on out-of-pocket drug costs of up to 10 drugs in 2026, another 15 in 2027 and 2028, and another 20 annually starting in 2029.
IRS Tax Enforcement:
The IRS is coming after the tax dodgers! It has been funded with $80 billion from congress as part of the climate and health care bill. This enables the IRS to target wealthier tax evaders. So from now on, the IRS enforcement unit will conduct more audits and thoroughly check on people who are not paying their fair share of taxes. It will ensure to diminish the disproportionate payment of taxes. However, this law does not impose taxes on families that make $400K or less.
Home Solar Energy Credit Extended and Increased
Under the Inflation Reduction Act, the Home Solar Energy Credit was Extended and Increased. Before the enactment of the Inflation Reduction Act, the use of solar energy was entitled to a non-refundable tax credit. This credit gradually started phasing out by slowly reducing the credit percentage from 30% to 22%, and it was scheduled to end after 2023. However, with the enactment of the inflation reduction act, the credit returned to 30% for the years 2022 through 2032. This means the ones who qualify for the credit in 2022 can benefit from a 30% credit rather than the expected 26% under prior law.
Energy Saving Home Improvement
If you are a homeowner or renter, great news for you! The new Inflation Reduction Act includes tax modifications for making Energy Efficient Home Improvement. From 2023, a $1,200 annual tax credit limit will replace the old $ 500 lifetime limit. Moreover, the credit percentage increased from 10% to 30%. Note that this provision has been extended and modified through 2032.
Clean Vehicle Credit
The clean vehicle credit replaced the current plug-in electric vehicle credit. Its credit amount is $3750 based on the requirements of the critical mineral and battery component. Moreover, it holds a transition rule. According to this rule, if you have a written binding contract of a newly purchased electric vehicle after December 31, 2021, and before August 16, 2022, and placed that vehicle in service, you may choose to take the old tax credit and avoid the modified AGI (income), vehicle price, and other restrictions under the new law.
That’s all about the latest update on the inflation reduction act and its provisions. Keep a note of the updates and make sure to pay the taxes as per the relevant tax rates. Ahad&Co is just a call away from any kind of support for the inflation reduction act.