The President signed the Inflation Reduction Act into law on August 16th, 2022 and it has sparked several misunderstandings on what the changes entail. We’ve provided answers to the most frequently asked questions below. But please email us at [email protected] if you have any additional questions in regards to the new tax law.
Will the corporate minimum tax rate apply to me?
Short answer: No.
Long version: The 15% minimum tax and the 1% tax on repurchased stock is only applicable to C Corps. Lucky for you, and your business, you elected to be an S Corp for tax purposes. So these taxes do not apply.
Does the new law make me more susceptible to an IRS audit?
Short answer: No.
Long version: There’s speculation that more individuals will be susceptible to audit. However, there’s no indication that the IRS would change its playbook. In 2019, the IRS only audited 0.25% of all tax returns. And, since the pandemic, their audit rates have continued to fall. It is probable that the IRS will continue to audit large corporations, high-net-worth individuals, and those who claim the earned income tax credit.
Which electric vehicles are now eligible for the tax credit?
Short Answer: It got complicated (If it was not already complex enough)
Long version: The big change in the electric vehicle tax credit is that it must meet the final assembly requirement to be in North America. The US Department of Energy has issued guidance, click here, on determining which vehicles are eligible. They’ve also included a VIN decoder to let you know if your specific vehicle is eligible.
How does the new tax law change my tax strategy?
Short Answer: No.
Long version: The S Corp election is still the best option for your tax strategy. Ensuring you have your accountable plans in place and the implementation of retirement accounts are still the most optimal tax options out there for your business.
Any incentives for energy efficient/Solar purchases for non-business?
Short Answer: Yes
Long version: Before the new law, energy efficient purchases for your home were capped at a 10% credit of the purchase price. Now you can take advantage of up to a 30% credit of the purchase price that would get reported on your individual returns.
The credit has also increased from 26% to 30% for any new solar purchases that have been installed on your primary residence.
Am I eligible for the increase in qualified small business payroll tax research credit?
Short Answer: It depends.
Long Answer: First you want to ask yourself, does my business...
Develop or design new products or processes
Enhance existing products or processes
Develop or improve upon existing prototypes and software
If the answer is “Yes”, then you may be eligible. R&D credits are typically determined by R&D professionals that only specialize in calculating the small business payroll tax research credit. If you believe you may be eligible then we would recommend reaching out to one of the following organizations used by our members in the past (please note that we do not have any affiliation with these organizations):