President Joe Biden signed the budget reconciliation bill H.R. 5376 into law Tuesday, August 16, 2022. Better known as the Inflation Reduction Act, the bill includes a number of tax provisions that may affect your business.
CORPORATE & BUSINESS TAX UPDATES
Corporate Alternative Minimum Tax
The new 15% corporate alternative minimum tax (AMT) applies to corporations that use deductions, credits, and other tax treatments to reduce their effective tax rates below the statutory 21% tax rate and report annual income of more than $1 billion to shareholders on their financial statements.
Companies with at least $1 billion of income are now required to calculate their tax responsibility one of two ways, owing the greater of the two amounts:
- 21% of profits less deductions and credits
- Apply the new 15% rate to the income they report to shareholders on financial statements
The provision excludes Subchapter S corporations, regulated investment companies, and real estate investment trusts. This change is applies to tax years beginning after December 31, 2022.
New Excise Tax on Stock Repurchases
The Inflation Reduction Act created a new nondeductible 1% excise tax on the value of corporate stock repurchases by publicly traded companies. The tax applies to purchases of corporation stock by a subsidiary of the corporation and to purchases by a U.S. subsidiary of a foreign-parented firm.
The tax does not apply if repurchases are less than $1 million or are contributed to an employee pension or similar plan. This tax is effective on repurchases made after December 31, 2022.
Permanent Extension to Fund Black Lung Disability Trust Fund
The higher excise tax rate to fund Black Lung Disability trust funds is now permanently extended. This tax funds benefits U.S. coal miners who develop Black Lung disease as a result of working in coal mines.
Increase Research Credit Against Payroll Tax for Small Business
This provision in the Inflation Reduction Act allows small businesses with less than $5 million in gross receipts and is under five years old to apply for an additional research credit of up to $250,000 against Medicare tax for taxable years beginning after December 31, 2022. The credit cannot exceed the tax imposed for any calendar quarter, with unused amounts of the credit carried forward.
Reinstatement of Limitation Rules for Deduction for State and Local, etc., Taxes; Extension of Limitation on Excess Business Losses of Noncorporate Taxpayers
This provision reinstates the current expiration date of the state and local tax (SALT) limitation, keeping it at 2025. It also extends the limitation on excess business losses of noncorporate taxpayers through 2028.
CLEAN ENERGY TAX UPDATES
The Inflation Reduction Act also includes a number of provisions aimed at incentivizing clean energy initiatives:
- Extension and modification of credit for electricity produced from certain renewable resources
- Extension and modification of energy credit
- Increase in energy credit for solar facilities placed in service in connection with low-income communities
- Extension and modification of credit for carbon oxide sequestration
- Zero-emission nuclear power production credit
- Extension of incentives for biodiesel, renewable diesel, and alternative fuels
- Extension of second-generation biofuel incentives
- Sustainable aviation fuel credit
- Credit for production of clean hydrogen
- Extension, increase, and modifications of nonbusiness energy property credit
- Extension of residential clean energy credit
- Energy efficient commercial buildings deduction
- Extension, increase, and modifications of new energy efficient home credit
- Clean vehicle credit
- Credit for previously-owned qualified plug-in electric drive motor vehicles
- Credit for qualified commercial clean vehicles
- Alternative fuel refueling property credit
- Extension of the advanced energy project credit
- Advanced manufacturing production credit
- Clean electricity production credit
- Clean electricity investment credit
- Cost recovery for qualified facilities, qualified property, and energy storage technology
- Clean fuel production credit
Depending on your business, there may be quite a bit of opportunity for your company to either start new or expand upon your current initiatives to take advantage of the new and extended environmental credits and deductions listed above.
Corrigan Krause Can Help
The Inflation Reduction Act includes a number of other provisions and updates that the Corrigan Krause team can help your business navigate. Reach out to your Corrigan Krause team members or email firstname.lastname@example.org for information on becoming a Corrigan Krause client.