The Inflation Reduction Act, passed in August of 2022, brought some major changes to how the IRS will operate moving forward. This new law has the potential to make a big impact on business owners, via the addition of both corporate and individual taxes, as well as an increase in IRS funding aimed at shoring up its enforcement efforts.
To start, the IRS received several billions of dollars in funding, including $45.6 billion for tax enforcement, $25.3 billion for operational costs, and a much-needed $4.75 billion to update the systems used in daily operations. These funds will be used to help the IRS provide more support for taxpayers and cut down on the backlog of tax returns that continue to pile up due to outdated software, as the organization continues to operate using decades-old computer systems.
Many business owners are understandably concerned about what the ramp-up in enforcement may look like. The IRS specified that while more audits will certainly result from this funding, the organization is primarily concerned about pursuing more impactful targets – larger businesses and individuals, where they argue there is a very significant amount of compliance issues.
The IRS also intends to use its enforcement funding to monitor cryptocurrency and blockchain activity, as well as digital currency transactions and purchases.
Another major change was the additional taxes for individuals earning over $400,000. There will be a minimum corporate tax of 15% on corporations making more than $1 billion, as well as a 1% surcharge on corporate stock buybacks which is designed to encourage businesses to invest rather than funneling profits to shareholders.
Other components of the Act involve encouraging individuals to switch to cleaner energy sources, as well as an impact on prescription drug prices. Somewhat ironically, many people are skeptical of the Act’s actual impact on inflation.
Arguably the biggest impact of the Inflation Reduction Act will be felt by the larger corporations and wealthier individuals. If you need help planning for a change in your tax burden, or you have additional questions about how the Inflation Reduction Act might impact you, contact The Law Offices of Tyler Q. Dahl today.
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