Tax increases and IRS financial pledges are targeted at high-income individuals and major organizations under the Inflation Reduction Act of 2022. To position themselves to benefit from new benefits and incentives, prevent unpleasant income tax shocks, and reduce IRS scrutiny, middle market businesses and their owners must understand how they can be impacted.

Businesses should take action now to benefit from the new credits and incentives that are effective immediately while devising a plan to cope with provisions that have deferred effective dates because several of the tax provisions in this legislation have effective dates of Jan. 1, 2023. With that strategy, they will be able to lessen the possibility of IRS examination and prevent unpleasant income tax shocks that new regulations could bring on. Consult a certified CPA in Herndon, VA, to learn more about your options.

The Inflation Reduction Act’s tax provisions are explained in the following ways for midsize businesses to understand:

1. The provisions of two tax increases could each be made more comprehensive by subtle changes.

A few U.S. companies are exempt from the new corporate alternative minimum tax, while others are not. One of the key differences between a firm controlled by an international parent and one part of a global group is its headquarters location.

A 15% tax is imposed on some firms and multinational groups’ “adjusted financial statement income” that exceeds $1 billion.

2. The IRS’s unprecedented spending levels have made audit preparation even more crucial.

The law contributes $80 billion to the IRS, of which $45.6 billion will be used for enforcement actions. The agency will need some time to operationalize that allotment, of course. The ability of firms to survive IRS scrutiny will be improved, given the predicted rise in exams, if they collaborate closely with a tax advisor to establish their tax positions and procedures and keep correct records.

3. Tax measures left out of the final legislation help determine the policy picture for the end of the year.

After the November elections, a potential extenders package will take center stage in federal tax policy as the budget reconciliation process is finished.

Certain sections of the Tax Cuts and Jobs Act that, as of January 1, 2022, have a different impact on taxpayers than they did in the years immediately after adoption are being considered. These include how research and development costs and corporate interest charges are taxed.