New tax law changes may be beneficial to some

New tax law changes may be beneficial to some

Changes to tax codes and policies will become noticeable in 2023, courtesy of the Inflation Reduction Act of 2022.

Those changes include tax credits and increases that affect individuals, small businesses and corporations.

The tax credits offered in the Inflation Reduction Act (IRA) surround clean energy and electric vehicles that can benefit manufacturers, businesses and families.

According to the law, consumers will be able to earn $14,000 in rebates if they purchase energy-efficient home appliances such as heat pumps. Families that install solar panels on their roofs can receive a 30% tax credit.

New tax law changes may be beneficial to some
Jesse Becker. Courtesy Jesse Becker

Jesse Becker, senior accountant for Dan Carter Advisors in Ada, said he is advising his clients to take time to look into some of the credits when they become available in 2023.

“With a lot of these energy credits and incentives, you almost have to go to the manufacturers or the contractor that you are working with on your projects,” he said. “If you are updating your office building or you are updating items in your home and you’d like to get some of those credits, those contractors and manufacturers will know which items qualify for these climate tax breaks and the different rebates you’d get.”

David Strong, a Washington national tax services partner for Crowe, said manufacturers could benefit from the tax credit through capital investment by making energy-efficient products.

Electric vehicles are part of the clean energy portion of the act, allowing owners to receive up to $7,500 in tax credits for new electric vehicles and $4,000 for used electric vehicles. While the tax credits will not go into effect until next year, some eligible vehicles already are on the market.

According to Hungerford Nichols CPAs + Advisors, these include the 2022 Audi Q5, 2022 BMW 3-series Plug-In, 2022 Chrysler Pacifica PHEV, 2022 Ford F Series, 2022 Lincoln Aviator PHEV, 2022 Tesla Model 3, 2022 Rivian R1S and 2022 Nissan Leaf, among others.

Hungerford said the new credit has rules requiring the vehicles to be primarily built in North America, which means some Toyota, Hyundai, Porsche and Kia vehicles are not currently eligible.

Another portion of the law also addresses C corporations, which are generally publicly traded companies owned by shareholders. There will be a 15% minimum tax imposed on corporations that are earning $1 billion or more.

Daniel Harris. Courtesy Tiberius Images

Daniel Harris, senior manager for Hungerford, said the minimum 15% tax will be based on financial statement net income, which is the net income corporations report on their books rather than the normal taxable income on their tax returns.

“Only corporations with an average annual financial statement net income of over $1 billion will be subject to this, and even then, it will only apply if this tax is higher than their regular corporate income tax,” he said. “$1 billion is a high amount of net income that would largely only impact some publicly traded corporations.”

Although the 15% minimum tax will not be imposed until 2023, Strong said corporations will have to look back on average income of the past three years to see if they have earned over $1 billion. If so, then 2023 will be the first year the tax is imposed.

“In a lot of other aspects of the tax law, they use what is called a testing period, so you might have one year that you are above ($1 billion in income) and one or two years you are below that,” he said. “Generally, the idea behind that is if one year it is kind of a blip and you are above that $1 billion mark, but generally you are not, it’s kind of a leveling effect.”

That may not apply to corporations passing the $1 billion mark for even one year.

David Strong. Courtesy Crowe

“The unique thing is that once you become an applicable corporation, it is very hard to stop being an applicable corporation,” Strong said. “In the future, you might dip below the $1 billion threshold, but the way the tax law is structured right now, you don’t automatically become exempt from the corporate minimum tax.”

The Internal Revenue Service also will benefit from the new law. Becker said the law includes $80 billion in funding for the organization, which will use some of it to hire 87,000 new agents over the next 10 years.

“That was a huge piece in that bill, and what scares people most is that the biggest portion of the bill went to the enforcement segment of the IRS,” he said. “They put a very small amount (toward) taxpayer advocates and services, so that would be (used for) their phone lines or responding to emails. Majority, over half of it, went to enforcement, so that is like auditors and your IRS agents who would go out into the field. In my opinion, the IRS has been quite underfunded — they are way behind on their paper filings and their technology is extremely outdated — so they do need some funding.”

New tax law changes may be beneficial to some