The Inflation Reduction Act (with the poorly selected IRA acronym) was signed into law on Tuesday, August 16. While the $430 billion package includes many provisions, there was very little from a planning perspective that needs your attention. It is important to note that a few items that were being discussed as part of these deliberations DID NOT get change, which is a relief for many high income business owners. These include:
1. The 3.8% surtax (lack of) being applied to S-corp profits.
2. Top income tax rates.
3. Backdoor Roth conversion rules.
Again, there were no changes to the above, and they stay as-is.
There were a few areas that might provide some benefit. A summary of the biggest three is below:
Tax credits for energy-related home improvements
The bill includes a 30% tax credit for installing energy-efficient windows, heat pumps, or newer appliances. There’s another tax credit for installing solar panels, and up to $14,000 worth of rebates for upgrading to new, energy-efficient appliances.
Expanded EV tax credits
If you have an electric vehicle, you’re in luck! New tax credits are immediately available, with up to $4,000 offered for used EVs and up to $7,500 for new EVs. There’s also a tax credit for installing an electric charger in your home (just read the fine print to ensure you qualify).
Prescription drug caps
Some changes don’t take effect right away. For example, insulin payments will be limited to $35 per month for Medicare Part D beneficiaries starting next year. In 2024, overall out-of-pocket drug costs will be limited to $4,000 annually, dropping to $2,000 in 2025.
Lastly, the new legislation comes with beefed up funding for the IRS. $3 billion is allocated to taxpayer services (maybe now we can finally get a real person on the phone?). $45 billion is allocated to enforcement. This will increase the risk of taxpayers being audited but from what I read, the risk is still less than 3% of returns.
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