On August 16th the President signed into law the Inflation Reduction Act of 2022.
While there are a lot of moving pieces within the law below are the key points we feel will concern our clients.
The law gives the IRS additional funding:
- $3.18 billion for taxpayer services,
- $4.75 billion for business systems modernization,
- $45.6 billion for enforcement,
- $25.3 billion for operations support, and
- $675.5 million for non-IRS tax administration.
The key number that jumps out here is the 45.6 billion for enforcement. While the IRS says that they will not target small businesses, they have said that they will target families earning over $400k per year. With the additional funding behind them there is a greater chance that pass through entities like S Corps, Partnerships ect will face greater scrutiny through IRS agents and updated software systems that will be able to flag returns for review that were previously passed over.
What does this mean for clients and small business owners?
Tighten up your books, have third party evidence to back up S Corp salaries, and if you used one of those Employee Retention Credit shops, be sure you understand the criteria used to get those credits.
Additional items of interest in the law
- New Tax Credits for commercial vehicles under 14,000 pounds
- Starting in 2023, there will be new vehicle price limits: for §30D, it is $55,000 (or $80,000 for pickups, SUVs, and vans). For §25E, it is $25,000 for all cars. On the plus side, the manufacturer limits will no longer apply.
- Starting in 2024, a taxpayer can elect to transfer their tax credit to their dealer to be applied to the purchase of the car.
That’s all for today! We will provide more details as they apply to specific clients during our tax planning meetings.