The Inflation Reduction Act (IRA), signed into law on August 16, 2022, includes tax provisions affecting businesses, individuals, the clean-energy industry, healthcare, and more. Let’s take a look:
Businesses
Sec. 461(l) Business Loss Limitation. The pass-through tax deduction for small business owners (sole proprietorships, some limited liability companies, partnerships, and S-corporations) was enacted under tax reform (TCJA of 2017). The tax break limited individuals from taking more than $250,000 ($500,000 for married taxpayers filing jointly) of business losses to offset nonbusiness income. In effect for tax years 2021 through 2026, it has been extended through 2028.
Research Credit Against Payroll Taxes. For tax years beginning after December 31, 2022, the limitation amount increases by $250,000 to $500,000 for the Sec. 41(h) research credit against payroll tax for small businesses. The first $250,000 of the credit limitation will be applied against the FICA payroll tax liability. The second $250,000 of the limitation will be applied against the employer portion of Medicare payroll tax liability.
Alternative Minimum Tax for Large Corporations. The corporate AMT repealed under tax reform in 2017 has been reinstated but is based on book income – the amount of income corporations publicly report on their financial statements to shareholders – instead of taxable income. Generally, this new corporate AMT of 15% applies only to large corporations with an average adjusted financial statement income exceeding $1 billion for the three consecutive tax years preceding the tax year.
Nondeductible 1% Excise Tax on Corporate Stock Repurchases. A new 1% excise tax applies to corporate stock repurchases after December 31, 2022. The tax is paid on the stock’s fair market value (FMV); however, the excise tax does not apply if the total value of stock repurchased during a tax year is $1 million or less. Furthermore, it also does not apply if repurchased stock is contributed to an employer-sponsored retirement plan, employee stock ownership plan, or for stock repurchases that are part of a reorganization in which the shareholder recognizes no gain or loss.
Healthcare
Affordable Care Act Premium Tax Credits. The premium tax credit is extended through 2025 for taxpayers whose household income exceeds 400% of the poverty line.
Seek Professional Guidance
When making tax planning decisions, obtaining the advice of a tax professional is critical. If you need assistance, don’t hesitate to call.
