A Closer Look at the Inflation Reduction Act Tax Provisions

Inflation Reduction Act

This year, the IRA (Inflation Reduction Act) replaced the House-passed “Build Back Better Act” of late 2021, with the aim to, among other things, lower the nation’s debilitating inflation. As the act becomes mainstream, average taxpayers may get confused regarding what they owe to the Internal Revenue Service (IRS). That is why consultation with an experienced IRS tax attorney is important. If you are a resident of Dallas – Fort Worth, you have easy access to the best IRS attorneys in Dallas – Fort Worth, TX. In this blog, we take a closer look at the Inflation Reduction Act tax provisions. So, let’s get started!

Major tax provisions you should know

The updated draft legislation of the Inflation Reduction Act will include the following major changes, effective after December 31, 2022, unless otherwise noted.

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Individual Income Taxes

Here are the major highlights:

  • The IRA extends the limitation on pass-through business losses enacted in the 2017 TCJA (Tax Cuts and Jobs Act) for two years through 2028.
  • It also extends the expanded health insurance Premium Tax Credits provided in the ARPA (American Rescue Plan Act), including allowing higher-income households to qualify for the credits and boosting the subsidy for lower-income households, through the end of 2025.

Mistakes to avoid if you owe back taxes

When it comes to back taxes, even a slight mistake (intentional or unintentional) can trigger serious tax collection procedures. Common mistakes to avoid include:

  • Not paying taxes: As a taxpayer, it goes without saying that not paying taxes will only land you in serious trouble. This includes ‘failure to file’ & ‘failure to pay’.
  • Not knowing your options: The IRS provides several tax help options such as the IRS offer in compromise, penalty abatement, and payment agreement to help taxpayers conveniently. The only way you can find a resolution to your IRS problem is first knowing your options.

Corporate and International Taxes

Here are the corporate and international taxes in a nutshell:

  • The IRA imposes a 15 percent minimum tax on corporate book income for corporations with profits over $1 billion, effective for tax years beginning after December 31, 2022.
  • It creates a 1 percent excise tax on the value of stock repurchases during the taxable year, net of new issuances of stock, effective for repurchases after December 31, 2022. Excluded from the tax are stock contributed to retirement accounts, pensions, and ESOPs (employee stock ownership plans).

Other Modeled Tax Proposals

Other modeled tax proposals are as follows:

  • The IRA modifies, extends, and creates a variety of tax credits for green energy and other efforts primarily through 2031 or 2033.
  • The provision raises the Superfund tax on crude oil and imported petroleum to 16.4 cents per barrel (indexed to inflation) and increases other taxes and fees on the fossil fuel sector.

Significant Proposals Not Modeled

Here are the significant proposals not modeled:

  • It expands IRS enforcement funding by about $80 billion over 10 years.
  • The IRA also imposes a 95 percent excise tax penalty on drug manufacturers to lower drug prices.
  • It increases the research & development tax credit amount that can be claimed against payroll taxes for small businesses by $250,000.

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Economic effects of the Inflation Reduction Act Tax Provisions

As per estimates, the IRA could potentially diminish long-term economic production by around 0.2 percent and result in the loss of about 29,000 full-time equivalent jobs in the United States. Such an estimation was calculated using the General Equilibrium Model of the Tax Foundation. Over time, it will also lower the typical after-tax income for taxpayers in every income quintile. That being said, there’s a silver lining to this dark cloud. According to the White House, no family with an annual income under $400,000 will have their taxes increased by even a small amount. Interestingly, the Inflation Reduction Act will eventually increase the marginal income tax rates that apply to higher earners and corporations. The distributional outcomes that follow do not take into account how IRS enforcement or drug pricing regulations affect after-tax revenues. On a traditional basis, the plans will result in an increase in the bottom quintile’s after-tax income of around 2.1 percent in 2023, mostly as a result of increased healthcare subsidies. The expansion of energy tax credits will enhance the after-tax income of the top 1% earners by 0.1 percent in 2023, offsetting income losses from the corporate book minimum tax and the tax on share repurchases.

Final word

Numerous changes are introduced to the country’s tax structure, a trend that has seen increased frequency ever since the covid pandemic first hit. The best way to keep track of the many changes and avoid incorrectly filed, unfiled, or unpaid IRS taxes is to get help from a seasoned IRS tax attorney. If you are a resident of Dallas looking for tax attorney help, The Law Offices of Nick Nemeth has the best tax attorneys in Dallas – Fort Worth, TX. We offer tax help in Dallas – Fort Worth to taxpayers on all issues related to their state and federal taxes. We have a team of highly experienced attorneys that are always ready to discuss your case and render the necessary assistance. To get a FREE no-obligation consultation, call (972) 426-2553 or fill out our contact form.