What is Not in the Inflation Reduction Act & Why You Should Start Year-End Tax Planning

The Inflation Reduction Act of 2022 is a 10-year plan that covers healthcare, climate and tax law. The good news, the tax raise provisions focus on large and publicly traded corporations. The major provision that may impact you – and all of us – is increasing IRS funding by $80 billion over 10 years. This could – in theory –double the size of the IRS over 10 year period.

WHAT IS IN THE ACT

Below is a quick summary of the tax raise provisions in the Inflation Reduction Act of 2022:

  • A 15% corporate alternative minimum tax on adjusted book income. This generally applies to businesses with more than $1 billion in income. It does not apply to your business entities.

  • 1% excise tax on corporate stock repurchases. This generally applies to publicly traded companies. It does not apply to your business entities.

  • $80 billion increase in funding over 10 years for the IRS. There is uncertainty as to what enforcement and operations will be funded.

WHAT IS NOT IN THE BILL

Below are the notable items NOT in the bill that were proposed in the Build Back Better Act:

  • No increases to the tax rates on high earners.

  • No increase to the corporate income tax rate, which remains at a flat 21%.

  • No revisions to the estate and gift tax rules.

  • No adjustments to the tax rates applicable to individuals on long-term capital gains.

  • No revision to the qualified small business stock exclusion.

  • No change to the like-kind exchange rules.

REDUCE YOUR INCOME TAX COSTS

It's time for individuals, businesses and family offices to start 2022 year-end tax planning. This is an opportunity to understand your tax situation with your Reese Henry advisor and make decisions on reductions, deferments or even accelerating tax obligations. Working with your Reese Henry advisor, we can estimate your tax liability and consider tax minimization strategies. Strategies we consider in tax planning are:

  • Maximizing Qualified Business Income Deduction

  • Minimize the Net Investment Income Tax

  • Timing investments in business property for depreciation

  • Grouping charitable contributions

  • Deduct business owners’ home office expenses

  • Deferring capital gains

  • Realizing capital losses

  • Optimize contributions to qualified retirement plans

  • Make a Pass-Through Entity state tax election

  • Review Asset Placement strategies

  • Allocate income among family members

  • Capture other tax credits

Please contact your trusted advisor at Reese Henry to start your year-end tax planning.