Inflation Reduction Act

The Inflation Reduction Act was recently passed by Congress and signed into law by President Biden. There is no shortage of tax implications in the bill, so I thought we would reach out with an overview of some of the main tax changes. 

• Corporate Alternative Minimum Tax Rate: Corporations with $1 billion or more in income will have a new corporate alternative minimum tax rate of 15%. This will affect large C-corps (S-corps are excluded) with more than $1 billion of adjusted financial statement income (AFSI) over a three-year measurement period.

This provision eliminates the previous avenue through which such entities were able to report negative income to the government, even amid strong profits. Dozens of large companies paid zero dollars in federal income taxes in 2020 and 2021. That will no longer be the case. 

• Excise Tax on Corporate Stock Repurchases: Publicly traded U.S. corps will now pay a 1% excise tax on the fair market value (FMV) of any repurchased stock. Exemptions to the new rule exist, including contributions to employee retirement plans, buybacks treated as dividends, and repurchases of less than $1 million during a fiscal year. The new rule affects repurchases after December 31, 2022.
• IRS Funding: The bill injects $80 billion into the Internal Revenue Service (IRS) over the next ten years, expected to collect at least $400 billion in tax revenues over that time. It’s still unclear exactly how the funds will be used, but lawmakers estimate that $45 billion will fund tax enforcement measures. Budget allocations could include staffing, technology upgrades, and operations.

Be sure to save your receipts for business expenses.

• Tax Break Limits: The bill extends pass-through-entity tax break limits through the end of 2028. Real estate businesses and business owners that use pass-through entity losses to offset other non-business income (S-Corps, some LLCs, sole proprietorships, partnerships) should be happy to hear it.
• Climate Change Investments: The bill allocates $369 billion for electric vehicles and clean energy tax breaks. In addition, tax incentives will exist for energy-efficient upgrades like solar panels, electric vehicles, home efficiency projects, appliances, and more.

We hope this helped to convey some of the important tax implications related to this latest piece of legislation. If we can answer any questions or be of service to you in any way, please reach out to Geeslin Group.