Key provisions in the IRA include funding for clean energy tax credits, an infusion of funds to the Internal Revenue Service, changes to Medicare prescription drug policies, and new corporate taxes.
Read on to learn about how these provisions could impact your business.
New corporate taxes
• Corporate minimum tax of 15% of book income. While the current corporate tax rate is 21%, many businesses can pay less because of deductions and credits. The new minimum tax is based on the financial statement income for corporations with revenues over $1 billion for tax years beginning after December 31, 2022. The legislation allows for bonus and accelerated depreciation deductions when calculating financial statement income and exceptions for S corporations, real estate investment trusts (REITs), and regulated investment companies such as hedge funds.
• Excise tax on stock buybacks. Stock buybacks often are used to decrease taxes paid for years. The IRA introduces a new 1% excise tax on corporate stock repurchases in tax years beginning after December 31, 2022.
Research credits to payroll taxes
This goes into effect for tax years beginning after December 31, 2022, and allows for unused credit amounts to be carried forward in certain circumstances.
Renewable, clean energy tax provisions
The IRA also modifies and extends through 2024 tax credits for producing electricity from qualified renewable resources, investments in qualified energy properties, and using alternative fuels and fuel mixtures (including biodiesel and renewable diesel).
New tax credits will be available in the coming years for the production and/or sale of:
With the modifications, businesses that use energy-efficient commercial buildings may see additional tax deduction opportunities. The IRS introduces a new credit for commercial clean vehicles and modifies the refundable tax credit on plug-in electric vehicle purchases.
The IRA provides funds so the Environmental Protection Agency (EPA) can create a greenhouse gas reduction fund and support existing programs that provide financial incentives to reduce air pollution emissions. These include replacing eligible medium- and heavy-duty vehicles with zero emissions options, identifying and reducing emissions from diesel engines, and monitoring air pollution and greenhouse gases.
Increased tax enforcement, customer service
The Inflation Reduction Act is expansive and could affect many business tax strategies. We’ll keep you updated as new information comes to light. In the meantime, consider scheduling your annual tax strategy review with one of our tax professionals to discuss how the IRA could impact your business.