Key takeaways:
- President Biden recently signed into law the Inflation Reduction Act (IRA). The Act includes several tax changes such as tax increases for certain large corporations, incentives to address climate change, clean energy, and provisions to promote health care affordability.
- Consult with your financial advisor and tax advisor to discuss this bill and determine if and when any actions should be taken.
On August 16, President Biden signed into law the Inflation Reduction Act of 2022. The roughly $740 billion tax and spending package includes a new book-minimum tax on certain large corporations, an excise tax on stock buybacks, a significant funding boost for IRS enforcement efforts, a long-term extension of the Superfund excise tax, incentives to address climate change mitigation and clean energy, and provisions to promote health care affordability.
The Inflation Reduction Act did not include many of the items from prior proposals. Substantially all of the individual tax cuts from the 2017 Tax Cuts and Jobs Act remain in place. Marginal tax and capital gains tax rates remain unchanged. There are no changes to the estate and gift tax exclusion amount. Keep in mind that many of the Tax Cuts and Jobs Act provisions are still set to sunset at the end of 2025.
To learn more about what the Inflation Reduction Act means for the U.S. economy and investors, read Wells Fargo Investment Institute’s (WFII) August Policy, Politics & Portfolios report.
What’s included in the Inflation Reduction Act?
Provision
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Details*
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Effective date
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---|---|---|
Taxes
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IRS Enforcement
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$80 billion to the IRS over a 10 year period:
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8/16/22
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Corporate alternative minimum tax
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1/1/2023
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Stock buyback excise tax
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1/1/2023
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Extension of excess business loss limitation
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Extended for 2 years
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Healthcare
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||
Insulin Price Cap and Medicare enhancements
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Varies
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Clean Energy
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||
Energy Security and Climate Change Investments
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Spending and credits intended to:
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Varies
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*The information is general in nature and should not be considered legal or tax advice. Wells Fargo and its affiliates are not legal or tax advisors.
*Source: Mindset DC Memo “Detailed Summary of the Inflation Reduction Act of 2022”
What is not included in the Inflation Reduction Act?
We wanted to make mention of items that gained attention in previous versions of this bill (and from the previously known “Build Back Better” bill) that did not pass. These include, but are not limited to, the expansion of Net Investment Income Tax (NIIT) on business income, surcharge on high income earners, increases to the state and local tax deduction (SALT), limitations on ROTH IRA conversions, and modifications on the qualified small business stock exclusion. The proposed change to carried interest was also removed from the final version of the Inflation Reduction Act.
What actions should I consider taking?
For individuals that feel they may be impacted by these changes, consult with your financial advisor and tax advisor to discuss this bill and determine if and when any actions should be taken. Continue to evaluate traditional year-end tax planning strategies that may be appropriate for your situation. Ask your advisor for a copy of the Tax Planning Guide which discusses many of these strategies.
Author: Advice and Planning, Offered through Wells Fargo Bank, N.A.