The Inflation Reduction Act was signed into law on August 16, 2022. While the $430 billion package includes many provisions, this article highlights key areas where you or your business may benefit the most.
The newly passed law favors middle-income taxpayers and small businesses, as it does not increase their taxes, but imposes a minimum corporate tax rate of 15% on large businesses that make more than $1 billion in reported income.
Here are some of the benefits your small business can take advantage of:
- Incentives on Providing Prevailing Wages – Your business may be eligible for bonus credits included under the expanded tax credits for energy efficient commercial buildings, new energy efficient homes, and electric vehicle (EV) charging infrastructure, if you pay prevailing wages and hire registered apprentices.
- Increase in Research and Development Tax Credit – The law levels the playing field by doubling the R&D tax credit for small businesses, from $250,000 to $500,000 starting 2023. With this, you can reduce your operating expenses and concentrate your budget on innovation, commercialization, and job creation.
- Tax Credits for Clean Energy Costs – Tax credits are also made available to businesses on amounts spent on supporting the clean energy movement:
- 30% of the amount spent on switching to low-cost solar power;
- 30% of purchase costs for clean commercial vehicles; and
- $5 per square foot of the building where energy efficiency improvements have been made.
- Tax credits for energy-related home improvements - The bill includes a 30% tax credit for installing energy-efficient windows, heat pumps, or newer appliances. There’s another tax credit for installing solar panels, and up to $14,000 worth of rebates for upgrading to new, energy-efficient appliances.
- Expanded EV tax credits - If you have an electric vehicle, you’re in luck! New tax credits are immediately available, with up to $4,000 offered for used EVs and up to $7,500 for new EVs. There’s also a tax credit for installing an electric charger in your home (just read the fine print to ensure you qualify).
- Prescription drug caps - Some changes don’t take effect right away. For example, insulin payments will be limited to $35 per month for Medicare Part D beneficiaries starting next year. In 2024, overall out-of-pocket drug costs will be limited to $4,000 annually, dropping to $2,000 in 2025.
- Extension of Healthcare Reliefs – The passing of the Inflation Reduction Act has also extended the following laws’ effects and benefits:
- The Affordable Care Act’s funding, which was set to expire in 2022, has been extended until 2025. This means that until then, Americans can continue to purchase insurance with lower premiums
- It further extends the expanded eligibility for the premium tax credit temporarily granted by the American Rescue Plan Act, which suspended the exclusion of taxpayers with household income above 400% of the federal poverty line.
New legislation can come with benefits as well as new complexities. Reach out to a financial advisor to better understand this new law and how it can impact your financial goals.
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