New Jersey Society of CPAs Alerts Taxpayers to Inflation Reduction Act’s Tax Savings
IRS Given $80 Billion to Invest in Employees, IT and Serving Taxpayers, Not for Increased Audits
The New Jersey Society of Certified Public Accountants (NJCPA) is reminding individual taxpayers of the many tax savings set forth in the Inflation Reduction Act that was signed into law by President Biden on Aug. 16. The bill, named after its objective of achieving hundreds of billions in federal deficit reduction to help fight inflation, included a sweeping set of reforms in tax, health care and climate change. Tax provisions for individual taxpayers included the extension and expansion of renewable energy credits; up to $7,500 in tax credits for new electric vehicles ($4,000 for used electric vehicles); direct consumer rebates for families to purchase heat pumps or other efficient home appliances and a 30-percent tax credit for solar installation in homes.
For the average taxpayer, the bill, introduced by Senator Joe Manchin (D-WV) and Senate Majority Leader Chuck Schumer (D-NY), lowers costs for prescription drugs, health care and energy. It is designed for higher-income earners to bear the brunt of the changes as opposed to those taxpayers with income under $400,000 or small businesses. Secretary of the Treasury Janet L. Yellen sent a letter to congressional leaders on the tax provisions earlier this month, noting that the bill would either “reduce or have no effect on the taxes due or paid by any family with income less than $400,000 per year.” According to the Tax Policy Center, the lower 80 percent of households, ranked by income, will see far less than a 0.1-percent increase in their taxes. The biggest increase, by far, will be paid by the top 0.1 percent of income earners — those earning $4.4 million or more a year.
Another key tax component of the Act was to improve taxpayer compliance by providing about $80 billion in funding to the IRS over 10 years. The funding would be used by the IRS to increase staffing, improve IT systems and better serve taxpayers. In response to discussions about whether the funding would lead to increased audits, IRS Commissioner Charles P. Rettig said it will not be using the funds for increasing the number of audits, particularly for those earning less than $400,000.
“Taxpayers have faced many challenges recovering from the COVID-19 pandemic. It’s important that the average taxpayer takes advantage of all the ways they may qualify for tax savings under the new bill,” said Ralph Albert Thomas, CPA (DC), CGMA, CEO and executive director at the NJCPA. “CPAs are well-versed on the various tax ramifications for high earners, average individual taxpayers as well as corporations,” he added.
The Inflation Reduction Act also included a 15-percent corporate minimum tax on those U.S.-owned corporations with more than $1 billion in profit reported on their financial statements (book income) and foreign-owned multinationals that report more than $100 million in income. It also has a nondeductible 1-percent excise tax on corporate stock buybacks.
For those in need of a CPA, the NJCPA’s free online referral service, Find-A-CPA, can be accessed at findacpa.org.