The Inflation Reduction Act: What Does It Mean for You?
Inflation's been a hot topic for quite some time now—and not just for small business owners and professionals. The government has been seeking ways to mitigate inflation and negative consequences on the economy as well.
The Inflation Reduction Act, which was signed into law in August 2022, contains a lot of new provisions. Intended to bolster the economy through lower healthcare costs, higher tax revenues, and other measures, the act was the latest in a series of moves aimed at bolstering the country's stability.
What's in the Inflation Reduction Act?
The Inflation Reduction Act is a 10-year act and contains $500 billion across a range of initiatives and industries. Some of the legislation kicked in immediately upon signing, while other provisions will take years to implement.
Here are some broad highlights:
80% of the Inflation Reduction Act (or $400 billion) seeks to lower U.S. carbon emissions via tax incentives, loan guarantees, and more
Much of that $400 billion number above comes in the way of corporate tax credits, which aim to nudge companies toward investing in sustainable and clean energy practices
Consumers also qualify for energy tax incentives, including home improvements (we'll talk more about that shortly)
When it comes to healthcare, there's a focus on lowering prescription medication costs and out-of-pocket patient payments
What Tax Credits Should You Know About?
As a small business owner, education and preparation are paramount. The Inflation Reduction Act contains a multitude of information, but these two tax credits are a good starting point from which to learn more.
Tax credits associated with energy efficiency
The Inflation Reduction Act contains a number of points that affect small businesses, including a tax credit that will help you fund switching to a solar power source.
As for individuals, you can receive tax credits for home improvements you make to be more energy efficient, including installing new HVAC systems, windows, insulation, and more. There's also much more flexibility in the amount you can receive, as the maximum tax credit went from $500 flat for each person to $1200 each year.
Electric vehicle tax credits
Whether you primarily use your car for work or leisure, you can receive a tax credit on qualifying electric vehicles. Income limits and certain restrictions apply, however. For example, Tesla models exceed the maximum price limit for the credit, so if you bought a Tesla, you wouldn't be able to also claim the tax credit.
For both of the above credits, you can only claim one if you made the improvement or acquired the property after the corresponding effective date, so be sure to do some research and reach out to your CPA if you have questions about whether you're eligible.
If you'd like to dive deeper into either of these tax credits (or any other provisions of the Inflation Reduction Act), check out the IRS website for more detailed information.
Questions? Modis Advisors Can Help
While there's some speculation as to whether the Inflation Reduction Act will truly combat inflation, there's no denying that some of these changes can affect small business owners and individual consumers alike.
If you're looking for help with your specific tax situation, reach out to the team at Modis Advisors for clarity.