The Inflation Reduction Act was created to help tax preparers deal with the effects of inflation on their clients’ taxes in light of the recent increase in inflation.
In August, President Biden officially enacted the Inflation Reduction Act of 2022. Although there was no significant tax reform, the tax code was updated. These updates cover corporate tax reforms, healthcare tax benefits, and tax incentives for energy efficiency.
Continue reading to find out how these modifications can impact your clients’ taxes in the present and the future.
The Inflation Reduction Act: How Will It Impact Your Clients?
Some of the credits your clients may claim and how you prepare their returns will change due to the Inflation Reduction Act. This is especially true for customers who own businesses or buy electric cars.
Will the Act Result in Higher Taxes for Your Clients?
Your clients’ taxes shouldn’t go up as a result of the Inflation Reduction Act. The law does, however, impose a new 15 percent tax on firms earning more than $1 billion, so if your client falls under that category, they may experience an increase.
What Are the Changes in the Energy Tax for Your Clients?
The tax plan has provisions for energy rebate programs for homes, such as the Clean Vehicle Credit, Alternative Fuel Vehicle Credit, and energy credits for home upgrades.
What Is Clean Vehicle Credit?
The Clean Vehicle Credit has replaced the previous credit of up to $7,500 for buying a new electric vehicle.
Because of the Act’s expansion of the Clean Vehicle Credit, beginning January 1, 2023, your clients who purchase used electric vehicles may be qualified for a tax credit of up to $4,000, or 30 percent of the purchase price.
For this credit, there are additional modified adjusted gross income caps. The restrictions for new cars are $150,000 for single customers, $225,000 for Heads of Household, and $300,000 for married couples filing jointly.
The restrictions for used cars are $75,000 for single clients, $112,500 for Heads of Household, and $150,000 for married couples filing jointly.
To be eligible for the credit, new electric vehicles must be assembled in North America for the final time and be purchased after August 17, 2022.
Your client might, however, adhere to the earlier regulations if they signed a legally binding commitment to buy a brand-new electric automobile prior to the passage of the Inflation Reduction Act.
The Inflation Reduction Act also includes an additional credit for new, clean commercial vehicles purchased after December 31, 2022, of up to $7,500. Tell your clients about this because it will help company owners with their taxes.
What Tax Changes Affect Your Client’s Healthcare?
Prior to the Inflation Reduction Act, customers who earned more than 400 percent of the federal poverty level may use a credit known as the Premium Tax Credit when they buy health insurance through the Marketplace. For these clients, these advantages will still be available.
The Act also places a $2,000 annual cap on Medicare enrollees’ out-of-pocket payments for prescription medications. Additionally, Medicare will be able to bargain for lower pricing on some of the more expensive medications available.
Conclusion
The Act provides a number of changes to the tax code that will help offset the impact of inflation, and tax preparers need to be aware of these changes. The Inflation Reduction Act is a positive step towards offsetting the impact of inflation on taxpayers. However, tax preparers need to be aware of the changes that have been made so that they can properly advise their clients. Keystone Tax Solutions is the best software for tax preparers. This professional tax software will change the way you do business and work with your clients. Schedule a consultation with us today!
