As our country continues to grapple with an unsteady market and the lasting impacts of the COVID-19 pandemic, our governing bodies have worked to address some of the biggest issues facing us. Over the past few months, various legislation focused on inflation, high gas prices and climate change have been introduced. As a business owner, it’s imperative to stay up-to-date on all laws affecting the business landscape and to understand how they may impact your company. While these laws may not directly relate to your line of work, you might be able to leverage key pieces of new legislation, especially as it relates to tax credits or other tax advantages. Here are a few recent updates to be aware of:
Inflation Reduction Act
On August 16, President Biden signed the sweeping Inflation Reduction Act of 2022 into law. The legislation is intended to relieve the economic stresses caused by the rising inflation rate, help tackle climate change and lower prescription drug costs. While the legislation may not significantly impact small-to-midsize business owners, there are a few key aspects to be aware of. The Inflation Reduction Act will:
- Impose a 15 percent minimum tax on corporations with profits over $1 billion each year. However, it does not raise taxes for small businesses or families making less than $400,000 per year.
- Increase refundable payroll tax credits for research and development expenditures for small businesses from $250,000 to $500,000. The tax credit could apply to business owners investing in business improvement projects including implementing new products, processes, software and more.
- Impose a one-percent excise tax on stock buybacks in an effort to generate more funding.
- Extend excess business loss limitations an additional two years to 2028. Currently, non-corporate taxpayers’ business losses are limited to $262,000 for single taxpayers and $524,000 for joint filers due to Internal Revenue Code Sec 461(I).
- Increase the IRS budget by an additional $80 billion per year. Over half of the budget will be directed toward enforcement activity—Forbes predicts the increase in enforcement spending will mostly target large corporations, not small businesses—while the remaining budget will go toward enhancing IRS operational efficiency, improving customer service and updating technology.
- Extend a clean energy tax credit for homeowners and certain car buyers. While this doesn’t directly affect your business, you still may be able to take advantage of the tax credit extension by installing solar projects and purchasing other clean energy items for your home, including energy-efficient water heaters and HVAC systems. The Act extends tax credits for those buying a new or used electric vehicle to 2032, excluding high-priced luxury vehicles.
As a business owner or homeowner, the Inflation Reduction Act may not directly impact your taxes, but it can offer you certain relief through the increase and extension of tax credits.
Standard business mileage rate increase
In June, the IRS announced it would be increasing the standard business mileage rate for qualified driving expenses for the remaining months of 2022. Beginning July 2022, the standard business mileage rate increased as follows:
- Business travel increased to 62.5 cents per mile, up four cents from the 58.5 cents-per-mile rate effective for the first six months of the year.
- If you use your vehicle for medical reasons and deduct medical expenses on your tax return, the mileage rate increased to 22 cents per mile, up from 18 cents at the beginning of 2022.
- The moving expense mileage rate for active-duty members of the military increased to 22 cents per mile, up from 18 cents.
While the IRS annually adjusts the standard business mileage rate, higher gas prices seen over the past few months triggered a mid-year evaluation and increase.
Pass-Through Entity Tax by state
Over the past year, 29 states—and one locality—have adopted a Pass-Through Entity Tax to allow individuals to deduct business taxes on their personal income tax returns. While PTE taxes are paid by the entity, its members or shareholders are provided the benefit of a deduction or credit on their individual tax returns. The states that have enacted or proposed a PTE-level tax are as follows: AL, AR, AZ, CA, CO, CT, GA, ID, IL, KS, LA, MA, MI, MD, MN, MO, MS, NC, NJ, NM, NY, OH, OK, OR, RI, SC, UT, VA and WI as well as locality NYC.
While the intricacies of each law differ from state to state, the foundation of the PTET laws remain consistent. Check your local PTET program for specific ruling and updates.
Employee Retention Credit refund status and claim reminder
If you claimed the Employee Retention Credit to help support your business through the COVID-19 pandemic but have not yet received your refund, you’re not alone. While the IRS is still processing backlogged claims—some dating back to 2020—the IRS Commissioner announced the IRS expects to complete its unprocessed work by the end of 2022.
If you’re unfamiliar with the program, the Employee Retention Credit was created under the CARES ACT to encourage businesses to maintain their staff throughout the economic disruption of the pandemic. The ERC allows business owners to claim a cash refund of up to $26,000 per employee for qualified wages paid from March 13, 2020, through September 30, 2021. Speak with your accountant to see if you qualify for the credit.
Next steps for taxpayers
While these updates may not directly impact your business, it’s a smart idea to understand the economic effects of legislation and how you or your business may benefit from new tax laws. Speak with your accountant to see if any of the above topics apply to you, including receiving tax credits from the Inflation Reduction Act, the increase in the standard business mileage rate, a local PTET enactment or update, the possibility of filing an ERC claim, receiving an IRS late filing penalty refund or getting into compliance with the IRS. If the topics addressed do apply to you or your business, speak with your accountant about how to incorporate its benefits into your business plan.
Dominic Rovano, CPA is a Partner at Janover LLC and leads the firm’s Professional Services Group.