In August 2022, congress added new tax provisions to the Inflation Reduction Act, that are designed to address health care, fight climate change, and reduce the country’s deficit. These new provisions may affect your personal finances; here is a brief explanation of some of those added provisions:
Negotiation of prescription drug prices for Medicare Beneficiaries
The cost for prescription drugs will decrease at the beginning of 2023 due to the tax provision allowing Medicare beneficiaries to negotiate the price of their prescription drugs. It will also include a cap of $2,000 per year in prescription drug costs for beneficiaries each year at the pharmacy and will allow free vaccinations for seniors beginning in 2023.
A 15% corporate minimum tax
This provision applies for all large corporations exceeding $1 billion in profits, with some exceptions to private equity firms. The provision will require a new minimum of 15% tax and will apply based on the annual income in the corporation’s financial statement rather than their taxable income. This provision was added due to large corporations paying little to no tax in the previous years.
Expansion of IRS agents
The IRS received $80 billion in funding and is expected to hire 87,000 new IRS agents to increase tax collections and tax compliance through more audits.
Clean Energy Credit
This credit incentivizes taxpayers to install solar energy equipment to earn a non-refundable credit equal to 30% of eligible expenses. These expenses include solar panels, heat pumps, inspection and permit costs, batteries, contract labor for on-site preparation and installation, and sales tax. This credit will run until the end of 2032.
Electric Vehicle Tax Credit
Taxpayers who purchased a new electric vehicle before January 1, 2023, may be eligible for a tax credit of up to $7,500 and $4,500 for used electric vehicles. The amount of the credit will vary based on the manufacturing location of the vehicle when the car was purchased and placed in service, battery capacity to power, the vehicle, and other factors.
The Inflation Reduction Act is designed to grow the economy and reduce the deficit by billions and is projected to fall by more than $1.5 trillion during the year.
Disclaimer: The information provided above is not meant to be legal or tax advise. You should consult your CPA and attorney to determine the best course of action for your situation.
Mitzi E. Sullivan, CPA is a cloud based professional services provider specializing in cloud accounting.