On Sunday, August 9, 2022, the Senate passed the Inflation Reduction Act, which is now going to the House where it is expected to pass. While the bill primarily focuses on environmental and climate change initiatives and healthcare changes, it also included a number of tax provisions, in part, to pay for the rest of the bill’s items.
The cornerstone of its tax plan is a 15% minimum tax on corporate book income for businesses with profits of more than $1 billion, effective on January 1, 2023. Companies taking advantage of accelerated depreciation and small businesses that are subsidiaries of private equity firms can be exempted. Ultimately, according to the Joint Committee on Taxation this minimum tax impacts a relatively small number of companies.
Another key part of the bill includes $80 billion over the next 10 years to increase tax enforcement at the IRS. Aiming to collect more from corporate and high-net-worth taxpayers, more than half of that money is designated for enforcement. The rest is set aside for technology, operations, taxpayer services, and other areas.
The bill extended the health insurance Premium Tax Credits created under the American Rescue Plan Act (ARPA) for an additional three years. Basically, Affordable Care Act (ACA) premiums are subsidized by the federal government, and this extension means they will continue to be through 2025.
Individuals with an adjusted gross income of $400,000 or more now have a five-year holding period for carried interest to be taxed as long-term capital gain. The bill also limits the ability of pass-through entities (sole proprietorships and some limited liability companies, partnerships, and S-corporations) to use paper losses to write off costs like salaries and interest.
The bill creates a 1% excise tax on stock buybacks that occur on or after January 1, 2023. This applies to all domestic corporations with stock traded on an “established securities market,” though typically buybacks are a strategy most commonly used by very large, multi-billion-dollar companies to raise their stock price. Many are predicting that we can expect a rush on corporate stock repurchases between now and the end of 2022 to avoid this tax.
There are a variety of tax credits and incentives surrounding solar, green energy, and electric vehicles for companies and individuals. Some new excise taxes on crude oil and imported petroleum products, were also included. Keep in mind this is a brief summary of the tax provisions, so if you have questions about how these changes could impact you specifically, don’t hesitate to reach out.