This is How the Inflation Reduction Act Will Affect Some of You.
The Inflation Reduction Act introduces or repackages various tax reforms for many groups. Some reforms will affect/benefit businesses, but some will also affect/benefit individual taxpayers. Nevertheless, this article focuses on what’s in it for individual taxpayers and small business owners.
The Inflation reduction act is mostly inclined to reduce the impact of human activity on the planet. The bill avails an amount of about $30 billion in tax credits for wind and solar power. This amount includes both corporate and individual incentives. There are also credits for using heat pumps to warm your home.
As such, taxpayers will be incentivized for green energy private home improvements. This comes courtesy of the improved Energy Credits for Home Improvements. The previous $500 lifetime credit for home improvements such as installing high-efficiency furnaces, insulation, exterior windows, and doors had been terminated on December 31, 2021.
But the Inflation Reduction Act brings it back, starting this year for the same amount as it was. However, taxpayers are set to benefit even more starting in 2023 when the $500 lifetime limit is replaced with a $1,200 annual limit for 2023 through 2032.
There will, however, be a few exceptions that have lower annual limits. You can hire me to prepare your taxes so we can apply these credits accordingly.
This credit is limited to 30% of eligible expenses, or the dollar amount limitation noted, if less, and includes the cost of installation, which was not the case before.
Buyers of electric vehicles will also get tax incentives. It does not matter whether the car is new or secondhand. According to the bill, taxpayers will save up to $7,500 in tax credits for new electric vehicles and $4,000 for used electric vehicles. In total, this will help families save $950 per year.
However, all of the above are tax incentives. This means that taxpayers ought to go through the necessary processes in order to claim them. More so, the usual paperwork or documentation will be required to ensure that you don’t claim the credit only for it to be refused by the IRS.
To this effect, I urge everyone buying solar panels for their homes or installing new energy-efficient heating systems to keep all paperwork. Tax paperwork begins right when you enter into a transaction. You will require the receipts, both in physical and electronic forms.
If you are buying these improvements as a business, remember to do so using a business credit card. The failure to prove that you purchased anything you claim as a deduction or credit could disappoint you.
To note is also the reduction in prescription drug costs. The Inflation reduction act continues the Affordable Care Act premium subsidies. These lower the cost of health insurance from now until 2024. These were due to expire at the end of 2022 – not anymore.
However, we should also consider some useful information about these incentives. For example, implementation details and timeframes involved. A good example of other provisions in the bill that won’t kick in until this year or next is the efforts to lower drug prices, including caps on their costs for seniors. These will only kick in in 2025.
Nevertheless, about 1.4 million Americans are set to benefit from a $2,000 annual cap that will be placed on out-of-pocket medical expenses. But this provision will be effective starting in 2025.
There will be more benefits aimed at relieving citizens of the pain of paying more for medical treatment. I will be sharing more about this with my clients and my followers on my social media pages. It is my aim that everybody understands their taxes and how they can implement strategies to save money on taxes and build generational wealth. You can also follow my social media pages to know more.
Regarding taxes, the government has promised that no family making less than $400,000 will see their taxes increased. This could be good news, but you still need to hire a tax professional to guide you on taxes. From experience, I know how new bills, laws, etc., can mess things up for taxpayers when they least expect it. As such, find your tax professional now. I am available if you need me from any State.
Finally, much has been said about the IRS’ past misgivings because of the lack of manpower. The Inflation reduction act provides $80 billion in funding for the agency for the next 10 years.
As mentioned last week, this increased funding will result in more agents being hired. With more agents, the agency will be equipped to scrutinize taxpayers more deeply than before. This could mean more audits for middle-income earners and small business owners who have been dodging bullets.
If you fit the above profile and you know your taxes have been questionable, reach out to me now before the IRS comes knocking. You can contact my office HERE to book an appointment with me. We will discuss your taxes and how we can move forward.
This should be one of your tasks on the ‘emergency’ board because the year is fast coming to an end, which means we will start filing 2022 taxes soon. Don’t let this period come and find you ill-prepared when the IRS is hiring more agents to watch your taxes.
Frequently Asked Questions.
- What does the inflation Reduction Act do?
The Inflation Reduction Act is aimed at taming raging inflation, but in essence, it is more aggressive toward combating climate change. It also lowers prescription drug costs, health care, and energy costs.
- Will the inflation Reduction Act reduce inflation?
So far, the indications are that it will have more impact on climate change than on inflation itself. But there could still be a somewhat positive impact on inflation.
- What causes inflation?
Inflation primarily emanates from factors that affect demand and supply. On the supply side, when the cost of production increases or when producers, somehow, produce lower goods than what’s demanded, prices would rise.
On the demand side, when demand is more than what is being produced, prices also rise. That is why stimulus checks are blamed, in some circles, for the current round of inflation because Americans had more money to chase fewer goods (due to closed or limited capacity businesses during the pandemic).
- How does reducing the deficit reduce inflation?
A deficit is at the government level. When the government borrows or spends more than it makes or collects, there is a deficit. This type of deficit discourages private borrowing because already, the government is pouring money. When there is less private activity, the economy may face shortages, leading to inflation.
For this reason, reducing the deficit may reduce inflation. This is because a reduced deficit points to reduced government spending, which opens up private borrowing and encourages private production. More goods in circulation equal less inflation.
- What is inflation?
Inflation is a general increase in the prices of goods and services, resulting in a fall in the value of money or the fall of its purchasing power.
- How can inflationary pressure be reduced?
To reduce inflation, the government may reduce the level of money in circulation through various tools. These include increasing interest rates, reducing government spending, open market operation such as buying securities in the open market, and raising taxes.
