Three Facts On Taxes And Small Businesses

The Inflation Reduction Act was signed into law in the summer of 2022 as part of President Biden’s Investing in America Agenda. This landmark legislation is helping small businesses and working Americans by investing in deficit reduction to fight inflation, increasing manufacturing, lowering drug prices, and leveling the playing field when it comes to paying taxes.

Even though the law is nearly two years old, there is still debate on how this policy is truly helping Americans and that may ratchet up even more with the politics and tenor of an election year. With that in mind, here are three provisions of the Inflation Reduction Act that can benefit entrepreneurs and main street businesses when it comes to taxes.

1. Investing in Fairer Taxes

The Inflation Reduction Act provides additional funding for the Internal Revenue Service (IRS) to make up for decades of underfunding. The IRS is also able to hire more agents to seek revenue from high-earning taxpayers and large corporations making more than $400,000 a year who have used tax gimmicks to not pay their fair share. While some of this funding has been cut in subsequent spending packages, the effort appears to be paying off. In January, the IRS reported that it recouped an additional $360 million in overdue taxes from delinquent millionaires and an analysis by the agency and the U.S. Department of the Treasury estimates that tax revenues will increase by as much as $561 billion from 2024 to 2034.

2. Doubling the Research and Development Tax Credit for Small Businesses

The Inflation Reduction Act doubled the refundable research and development tax credit for small businesses, raising it from $250,000 to $500,000. The credit can be applied against payroll taxes and a wide variety of expenses, including product development and technology. This could potentially lead to greater private sector investment as well. A study in The Review of Economics and Statistics found that $1 of research and development tax credit can lead to about $4 of long-term research and development spending.

3. Consumer Tax Credits

This law made an investment in clean energy with efforts including a tax credit of up to $2,000 for equipping your home with an electric heat pump for heating and cooling and another for 30% of the cost of installing rooftop solar, geothermal, or battery storage. In addition, families who make other energy efficiency improvements to their homes can receive tax credits worth up to $500 for doors, $600 for windows, $150 for a home energy audit, and up to 30% off the cost of new insulation. For transportation, the Inflation Reduction Act provides up to $4,000 in consumer tax credits for lower- and middle-income individuals to buy used electric vehicles. The U.S. Department of Energy estimates that the clean energy provisions in both the Inflation Reduction Act and the Bipartisan Infrastructure Law will cut electricity rates by as much as 9% by 2030.

There is still opportunity to take advantage of the tax credits in the Inflation Reduction Act and other areas of the Investing in America agenda. Go to the Treasury Department’s Inflation Reduction Act Taxpayer Resource Hub to see what opportunities may be a good fit for you.