Valley Industry Association members had an early-morning start Tuesday with breakfast, coffee and a discussion on the Inflation Reduction Act.
“What really prompted us is that we knew the Inflation Reduction Act was in effect, but nobody really had the chance yet to kind of navigate it and tell us what the points are that might affect businesses,” said VIA President Kathy Norris. “That’s why we invited our speakers this morning to help us decipher it.”
Andrea Cummings, a tax and lead manager in the department of research and development for MUN CPAs, and Joey Romero, a tax manager for MUN CPAs, discussed tax credits under the Inflation Reduction Act.
The act was passed by the federal government in August with the aim to lower prescription drug, health care and energy costs, according to a statement released by The White House.
According to the speakers, a portion of the Inflation Reduction Act is dedicated to incentives for clean energy and tax records.
Romero elaborated on energy-efficient home improvement credits, energy-efficient products for real estate owners, and how the Internal Revenue Service will hire more agents — approximately 87,000 of them.
It’s very important for businesses to keep in compliance and report information correctly when doing taxes, he added.
“Some are extensions of current abstracts and some are also repacked credits,” Romero said. “So, for this energy-efficient home improvement credit, starting in 2023, the credit will equal 30% of eligible home improvements made during the year.”
He offered a bit of advice for impact planning, which was: “If you spread out these qualifying improvements over multiple tax years” a business owner could maximize those credits.
According to Romero, the act also includes a section that applies mainly to commercial and non-residential properties, and known as the energy-efficient building deduction.
“It allows real estate owners to claim a deduction for energy efficiency improvements,” Romero said. “This deduction can be transferred in the case of buildings owned by tax-exempt entities such as governments, churches, schools and hospitals.”
Cummings discussed a second energy efficient credit, known as the residential clean energy credit, that was previously set to expire in 2024 and has been extended through 2034. This credit covers qualifying systems, which include solar, electric property, solar water heating property, small wave energy property, geothermal heat pump property and fuel cell properties, she said.
“[There is] the research and development payroll tax credit for small businesses, which increased some $250,000 to $500,000 starting in 2023,” Cummings said. “It’s great for small companies to start to add to their credit and further reduce payroll taxes and other business expenses.”
Qualified research and development activities may include developing new or improved products, processes and new technologies, she added.
Chris Ingram, chief executive officer of Prosperitas Financial, then went on to discuss the Medicare side of the Inflation Reduction Act.
“You could probably make a good argument that this was improperly named,” Ingram said. “There’s not a lot in here that really reduces inflation, but there are portions in here in the medical side of things that actually do try to work through some inflationary issues, and bring costs down over time.”
According to Ingram, the government is “trying to bring down the costs to Medicare recipients, beneficiaries.”
Previously, the federal government was prohibited against negotiating prices on brand name drugs that don’t have generic brands, or much competition, Ingram added.
“Some of the fears that this may bring up to you guys, business owners,” Ingram said. “This may result in costs passed through to the employer market, so the private market.”
Another aspect of the act will reduce overall out-of-pocket spending, according to Ingram. First, the act will eliminate the “catastrophic threshold” and then cap it a certain amount, he added.
Insulin will be capped at $35 a month, and the act will also bring down the cost for adult vaccines and increase coverage of vaccines under the Affordable Care Act for children, too.
Ingram said the federal government is looking at raising $737 billion in revenue while spending $369 billion in green energy and tax credits, while extending the Affordable Care Act.
“They’re all estimates,” Ingram said. “We really don’t know how it will play out. We don’t know what the end result will be and how much money they are going to get through those additional IRS agents.”
“But at the end of the day, the goal was to bring down our [nation’s] debt a little bit with this program,” he added.