How the Inflation Reduction Act Can Help Your Small Business

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On Aug. 16, 2022, President Joe Biden signed the Inflation Reduction Act of 2022 (IRA). The bill was equally divided in votes for and against it, and was passed by a tie-breaking vote from Vice President Kamala Harris. Now it is law. Several things are in it that could affect your small business.

An Ongoing Commitment to Keep the Affordable Care Act Going

The Affordable Care Act (ACA)—passed under President Barack Obama’s administration—will continue to operate. The ACA has been subsidized since its creation to make the cost of health insurance accessible to more Americans. The subsidies were to end in December of this year, but now they will continue through 2025.

The White House reports that as many as 2.6 million small-business owners and self-employed people now get health insurance through this program. The program has enabled 13 million Americans to get the coverage they could not afford earlier. The savings in cost from existing plans outside the ACA is about $800 per year, or $67 per month.

Taxes Will Not Be Raised for Small Business

One of the provisions that small-business owners will enjoy is that the new law forces large corporations to pay a larger share of taxes. In the past, many of them paid very little in taxes—if any. Increasing taxes only for large corporations and higher-income people was made possible by setting a limit that no one—individual or small business—making under $400,000 will be taxed under the provisions of this bill.

Large corporations and families making more than $400,000 will pay a 15 percent corporate minimum tax. Alongside that, there will also be a 1 percent fee on stock buybacks, and the Internal Revenue Service (IRS) will watch them closely to ensure payment. The Inflation Reduction Act increased the IRS budget, enabling the service to hire many more agents for tax audits to enforce it—which means businesses of all sizes need to be more careful and thorough with their record-keeping.

Tax Credit for Research and Development

Small businesses cannot compete with large corporations in research and development (R&D), which gives them an advantage. The big companies have many more resources that enable them to advance products and techniques faster.

Small businesses have had a refundable tax credit for R&D of $250,000 up until this time. Forbes says that the IRA has doubled that credit, which can be used for R&D against payroll taxes, and more.

Improvements Made for Lower-Cost Prescription Medications

The cost of medicines and medical treatment has often been too much for many small-business owners and the self-employed. The Inflation Reduction Act changes the cost of some prescription medicines to make them more affordable. In a summary of the IRA, written by Senate Democrats, they reveal that vaccines will be free in 2023.

The cost of insulin, for example, has been a point of contention for a long time because so many people’s lives depend on it. The pharmaceutical industry has fought these changes for decades. Finally, a change has come. The IRA says that starting in 2023, insulin will not cost more than $35 per month.

Medical out-of-pocket costs will also have a standardized ceiling. By 2024, the maximum out-of-pocket cost for drugs will be $4,000 per year, which will be reduced further, to $2,000, in 2025.

Energy Costs to Be Reduced for Small Businesses

Small businesses that own their buildings, or who can work with the building owners, can reduce energy costs after making energy-efficient changes. A tax credit of 30 percent of the expense is available for installing solar cells. With this much savings, it should make the cost of the change more affordable.

Business owners who own business buildings can also receive a tax credit for conversions. They can get a $5 per square foot credit for energy sources that will lower their energy bills.

More Savings for Buying Electric Vehicles

The Inflation Reduction Act included several provisions intended to reduce pollution and clean the environment. Among the various aspects of the new law is the tax credit for buying electric vehicles (EVs) that use clean energy. The federal government will give a maximum credit of $7,500 to individuals or businesses when purchasing certain types of cars and batteries.

After Aug. 17, 2022, the tax incentive became available only for vehicles assembled in North America. The Alternative Fuels Data Center offers a list of the qualified electric vehicles.

A tax credit is also available for purchasing used clean vehicles. It ranges from $4,000 up to 30 percent of the cost. You must buy the vehicle from a dealer, and it must be at least two years old. Also, the credit is only available on the first transfer of title.

When you buy commercial clean vehicles that weigh more than 14,000 pounds, you can get a credit of up to $40,000, according to CRSReports.Congress.gov.

After Aug. 17, 2022, the credit became available only if the final assembly was completed in North America. People that have already purchased an EV that was not made in North America may still get the credit. If the EV was purchased before Aug. 16, 2022, and has not yet been delivered—but you had a binding contract—you may still be eligible for the credit.

Other restrictions on EVs are also in the IRA. Among them are that the tax credit does not apply to higher-priced EVs, which ConsumerReports says include the BMW i4, Kia EV6, Toyota bZ4X, and the Hyundai Ioniq 5.

In 2024, the tax credit will not apply if parts or minerals used in the car do not come from North America (especially since China currently supplies most of them). The IRA also places some restrictions on those who can receive the tax credit. CRSReports.Congress says that people with larger incomes are not eligible: single—$150,000; married filing jointly—$300,000; head of household—$225,000.

Because the Inflation Reduction Act, which may not actually reduce inflation, targets large businesses, the small-business owner can save more money and take advantage of some its benefits and tax credits. Now could be the ideal time to purchase those solar panels and electric vehicles you wanted and make your business greener than your competitors.

The Epoch Times Copyright © 2022 The views and opinions expressed are those of the authors. They are meant for general informational purposes only and should not be construed or interpreted as a recommendation or solicitation. The Epoch Times does not provide investment, tax, legal, financial planning, estate planning, or any other personal finance advice. The Epoch Times holds no liability for the accuracy or timeliness of the information provided.



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