On July 27, 2022, Senators Chuck Schumer and Joe Manchin announced an agreement to add the Inflation Reduction Act of 2022 to the current Budget Reconciliation bill – with a vote to be held this week. The bill includes several proposed revenue raisers and tax changes to fund initiatives aimed at lowering prescription drug prices, addressing the climate crisis, and reduce the deficit.
Here is a summary of the proposed tax changes:
Increased IRS Funding
The Act calls for $80 billion to be invested in the IRS over the next ten years. With over 50% of this amount being appropriated to enforcement, the Congressional Budget Office estimates the IRS will collect $203 billion in tax revenues with this provision.
15% Corporate Minimum Tax
This provision would impose a 15% minimum tax on “adjusted financial statement income” for corporations with profits in excess of $1 billion. Note that this is not imposed on alternative minimum taxable income as was the case prior to the Tax Cuts and Jobs Act under the Trump administration. This is drafted to be effective for tax years after December 31, 2022. The current 21% corporate regular tax rate would remain.
Carried-Interest
Generally used by private equity and hedge fund managers, the Act will eliminate the carried-interest tax break – where a portion of an investment manager’s income is classified as a capital gain and taxed at preferential rates compared to ordinary income.
Electric Vehicle Credits
The Act will expand the electric vehicle tax credit of $4,000 to the purchase of used electric autos for low to moderate income earners; and $7,500 for new electric vehicle purchases.
Renewable Energy Credits and Perks
Consumers will be able to claim tax credits and rebates for adding qualified energy efficient improvements to their homes – such as windows, doors, heat pumps, solar and HVAC. The Act will also include credits to incentivize the manufacturing of solar panels, batteries, and wind turbines in the United States.
What are the next steps:
It is unclear at this time if the Inflation Reduction Act of 2022 will pass in the Senate – and then will need to pass in the House as well. We are closely monitoring the progress of the Act and any proposed tax law changes in order to continue to provide you with the most current and effective tax planning services.
Contact a tax advisor here at WFY to discuss additional details regarding the Inflation Reduction Act, or sign-up for our newsletter here to receive more updates.
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