The Inflation Reduction Act of 2022 is a proposed piece of legislation by President Biden that includes updates to the current tax code, including corporate tax change, energy-efficient tax benefits, and healthcare tax benefits.
Will the Inflation Reduction Act Raise Your Clients’ Taxes
In general, the Inflation Reduction Act of 2022 will not raise your clients’ taxes except for those who own corporations. So if your client is a corporation, then their taxes will increase.
What Are the Corporate Tax Changes for Your Clients
If you have clients with corporations, the Inflation Reduction Act includes a charge of 15 percent tax on corporations with over $1 billion in earnings. An additional 1 percent of the fair market value will be charged on their repurchased stock.
What Are the Energy Tax Changes for Your Clients
The Inflation Reduction Act of 2022 includes various provisions in home energy rebate programs, such as Alternative Fuel Vehicle Credit, Clean Vehicle Credit, and other home improvement energy credits.
Expanded and Extended Clean Vehicle Credit
The Inflation Reduction Act of 2022 includes an expanded and extended Clean Vehicle Credit. This credit is available for purchasing certain low and zero-emission vehicles, including electric and fuel-cell vehicles.
Currently, the credit is worth up to $7,500 for purchasing new electric vehicles, but beginning January 1, 2023, people who will purchase used electric vehicles will get 30 percent of the sale price or up to $4,000 in tax credit. This credit is not subject to the alternative minimum tax.
Increased Home Energy Credits
As part of the Inflation Reduction Act of 2022, the home energy credit is being increased. This credit is available for qualifying energy-saving improvements to your home, such as insulation, energy-efficient windows and doors, and certain types of heating and cooling systems.
The credit is worth 10 percent of the cost of the improvements available for both existing homes and new construction. This increased credit is for those items placed before January 1, 2022. In addition, this act increased the credit to 30 percent for those items that will be purchased in service before January 1, 2033.
Increased Solar Energy Credits
The Inflation Reduction Act of 2022 also includes an expanded solar energy tax credit. The credit is now worth 30 percent of the cost of installing solar panels, up from the previous 26 percent. This credit is available for both residential and commercial installations. The credit will expire at the end of 2032.
What Are the Healthcare Tax Changes for Your Clients
The Inflation Reduction Act of 2022 will help keep healthcare affordable for people who earn over 400 percent of the Federal Poverty Level by continuing their Premium Tax Credit. This credit allows them to get a discount when they purchase health insurance.
Also, this new act will limit how much Medicare beneficiaries have to pay for prescription drugs to $2,000 per year.
How Will the Inflation Reduction Act Affects Tax Preparers
Here are some ways that the new act will affect taxpayers.
Program Enforcements
The Inflation Reduction Act of 2022 will have a significant impact on tax preparers, most notably through increased funding for enforcement activities. The IRS budget for enforcement activities will increase by 63 percent, from $13.7 billion to $21.7 billion. This increase in funding will allow the IRS to hire more personnel and conduct more audits, which will, in turn, lead to increased compliance among taxpayers.
Core Technology Improvements
The increased funding for enforcement activities will also have a ripple effect on other areas of the IRS. For example, the increased audits will likely lead to more taxpayers paying their taxes on time, which will free up resources that can be used to improve customer service or make other improvements to the tax system, including the IRS software and other essential technology.
Corporate and Higher Income Enforcement
The increased funding will also affect corporate and higher-income taxpayers. The IRS is increasing its focus on these groups (with an income of more than $400,000), and this will likely lead to more audits and tax revenue.
Conclusion
Overall, the Inflation Reduction Act of 2022 is a positive development for tax preparers. The increased funding will make it easier to ensure that taxpayers are compliant, and the increased compliance will lead to improved operations throughout the IRS.
As a tax preparer, it is important to be efficient and organized in order to provide the best possible service to your clients. At Keystone Tax Solutions, we offer the best professional tax software designed to help tax preparers save time to complete their work more quickly and accurately. It is the perfect solution for those who are looking for a way to increase their efficiency and accuracy. Contact us today to get started!
