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The impact of the Inflation Reduction Act on YOUR taxes

August 29, 2022

On August 16, 2022, the President signed the Inflation Reduction Act into law. In the past couple years, we’ve had quite a few tweaks to the tax code (temporary and less temporary), so it’s natural to wonder how you as a taxpayer will be affected by the provisions of the Inflation Reduction Act. To be honest, tax-wise, the average taxpayer probably won’t see much difference, but there are a couple items worth pointing out.

  • A lot of the Inflation Reduction Act deals with taxes on large corporations (above $1 billion in profits). Maybe these taxes are indirectly passed along to consumers in the form of higher prices, but strictly speaking, these tax laws won’t affect how you file your taxes.
  • If you purchase health insurance through the Health Insurance Marketplace, the Inflation Reduction Act is intended to help hold down costs of your insurance premiums.
  • Many of the recent energy efficiency and alternative energy tax credits had been set to expire in the coming years. The Inflation Reduction Act has extended a number of these credits. For example, the electric vehicle tax credit of up to $7,500 still exists, but it sounds as though qualifying will be more difficult than in the past (partly due to the number of electric vehicles already sold, which makes many models no longer eligible for the credit). If you are considering buying alternative energy products, it’s worth educating yourself more about how those credits work after the Inflation Reduction Act.

Finally, the section of the Inflation Reduction Act that has probably received the most media buzz is the additional funding allocated to IRS, with the specific purpose of increasing enforcement. We’re also being given the message that “this will not increase audit rates,” but it’s pretty difficult to imagine how increased enforcement can exist without increased audits. I think IRS faces two large challenges in actually bringing about such increased enforcement: 1) IRS still has an enormous Covid-related backlog and associated delays, and there will continue to be pressure placed on IRS to prioritize clearing out the backlog and 2) IRS will have to hire (and train) many more employees to perform its increased enforcement, at a time when nearly every employer in America is struggling to fill its staffing needs. So while there is reason to be wary of future increased enforcement, it may be a few years before we actually see the effects of this part of the Inflation Reduction Act. Still, make sure any position you take has a reasonable defense, and keep excellent records!

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