On August 16, 2022, the president signed the inflation act of 2022. This new act affects the tax law and changes a few things. Here we will discuss those changes and how they affect us as individuals.
Corporate Minimum Tax Rate
To begin with is the corporate alternative minimum tax, which can be a significant hit to certain corporations. The passing of the new inflation reduction act brought back the corporate alternative minimum tax of 15%. This will be effective starting the next tax year, that is, 2023.
The corporate minimum tax rate will now be 15%. This figure is based on the corporate adjusted financial statement income. The adjusted financial statement income, simply put is the average annual financial statement income above 1 billion dollars for the three prior years. To this end, the corporate minimum alternative tax would not affect many corporations. However, this can take a significant toll on larger organizations if they have tax rates below 15%.
Stock Buy-Backs Tax
The next change was implanted in the stock buy-backs. In the past years, organizations could buy-back their stocks and even redeem them. To do this, all they need to do is go to the NYSE (New York Stock Exchange), find their ticker and simply buy back their stock from the market. This used to be a good strategy for organizations to drive up their stock and reinvest in themselves.
This new act includes an additional 1% excise tax on stock buy-backs by domestic cooperation to stop trades on an established security market. In other words, anyone trading on the New York Stock Exchange and buying back their stock must pay an extra 1% excise tax on that purchase.
Expect a decline in stock buy-backs after 2022. To this end, we may see many business rush to do stock buy-backs before this excise tax begins.
Research Credit
Another affected area is the research credit for small businesses. In the tax years after 2015, businesses were allowed to claim research credit against their payroll taxes. This credit is being increased from $250,000 to $500,000
Green Energy Credits
A lot of changes were made to the new inflation act. Another significant change was made to green energy. A whole lot of changes were made in this area. The first change to green energy is the resident energy initiative. Usually, the credit for your residential energy improvement for walls, doors, windows, and the like would provide a credit of about $200 to $600. This credit amount was for the lifetime of the taxpayer, but with the new changes, it is now an annual credit limit of up to $1,200. This is advantageous to individuals considering making energy improvements to their homes.
Next under the green energy category is clean vehicles. Changes were made to the electric vehicle credit. Previously you could request a credit for your electric car regardless of where you got it as long as it qualified and was brand new. Now, your electric vehicle must be assembled in North America, and there is a credit set to $7,500 plus an income limitation to that credit. This means if you are above a certain income, the credit is reduced (phased out). You can also request credit up to $4,000 for a used electric car. These changes will last till the tax year 2032.
This act also provides a tax credit of up to 30% of a qualified commercial clean vehicle purchased after 2022. More so, any vehicle purchased and signed before August 16, 2022, is under the old tax law, and vehicles signed after the date above will be categorized with the new act.
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