Inflation Reduction Act of 2022

Date August 18, 2022
Categories
Article Authors

The Inflation Reduction Act (the “Act”) includes a number of important tax, climate, and health care provisions. The major tax provisions of the Act include an extension of the expanded Affordable Care Act premium assistance program through 2025, the imposition of an excise tax on stock buybacks, an increase in funding for IRS tax enforcement, expanded energy incentives, and the imposition of a corporate minimum tax.

Affordable Care Act Premium Assistance 1

The Act extends the reduced percentage of household income that is used to calculate the premium contribution for an individual claiming the premium tax credit through 2025. Also, for taxable years 2022 through 2025, taxpayers with household income exceeding 400% of the federal poverty line are allowed to qualify for the credit.

Excise Tax on Stock Buybacks 2

The Act imposes a 1% excise tax on the fair value of stock repurchased by a publicly traded corporation during taxable years after 2022. Taxable stock repurchases for each year are reduced for stock issuances during each such year. This tax applies to redemptions and similar transactions, including stock acquired by a corporate affiliate. The tax includes several exceptions, including tax-free reorganizations, repurchases of $1 million or less for the year, repurchases treated as dividends, and certain other transactions.

This excise tax is expected to raise $74 billion and prevent the favoring of buybacks for shareholders and executives over investments in workers and innovation.

IRS Funding for Enforcement 3

The Act appropriates about $80 billion to the IRS to add auditors, improve customer service, and modernize technology. The Congressional Budget Office estimates that this appropriation will allow the IRS to collect an additional $203 billion from tax enforcement efforts. A letter from IRS Commissioner Rettig recently reinforced that no family making under $400,000 per year will see increased audits.

An additional $15 million is appropriated to fund a report to Congress on the potential creation and maintenance of an IRS-run e-file system.

Expanded Energy Incentives

The Act’s expansion of energy incentives is its most extensive investment – introducing, expanding, and extending over 20 different deductions and credits. The Act also permits a taxpayer to elect to transfer all or a portion of certain eligible energy-related credits to unrelated eligible taxpayers (but the recipient taxpayer may not thereafter re-transfer any portion of the credit). The Congressional Budget Office estimates the cost of these incentives to be $369 Billion.

Corporate Minimum Tax 4

The Act imposes a corporate alternative minimum tax (AMT) equal to the excess of 15% of a corporation’s adjusted financial statement income (AFSI) over its AMT foreign tax credit. The AMT applies to C corporations with average annual AFSI greater than $1 billion during a three taxable year period (a reduced threshold applies to members of foreign-parented international financial reporting groups). AFSI is the corporation’s net income (loss) reported on an applicable financial statement, with certain adjustments described further in the Act.

The AMT applies to taxable years beginning after 2022 and is expected to raise $222 billion.

Excess Business Losses5

The Act also extends limitation on excess business losses by two more years (through 2028). This limitation applies to noncorporate taxpayers. This extension is expected to raise an additional $52 billion.

This Act has far-reaching tax effects that will impact a wide variety of taxpayers and has the potential to impose significant burdens on many taxpayers. If you believe that you may be impacted by any of this Act’s provisions, please contact an HBK tax advisor.

1 IRC §36B; Act §12001

2 New IRC §4501; Act §10201

3 Act §10301

4 IRC §55, §59, New IRC §56A; Act §10101

5 IRC §461(l); Act §13903

Speak to one of our professionals about your organizational needs

"*" indicates required fields

HBK uses the contact information you provide to send you information about our products and services. You may unsubscribe from these communications any time. For information on how to unsubscribe, as well as our privacy practices and commitment to protecting your privacy, check out our Privacy Policy.



Tips for Manufacturers Facing Inflation, Supply Chain Disruptions, and Other 2022 Challenges

Date February 18, 2022
Categories
Article Authors

As we move into 2022, manufacturers continue to report strong demand and increased production. However, the labor market remains tight and the global supply chain disruptions, inflation, and the omicron variant continue to present obstacles for companies. These are the highlights of the National Association of Manufacturers (NAM) Fourth Quarter 2021 Outlook Survey.

NAM surveyed 389 manufacturing companies to compile the results. The respondents included small, medium and large manufacturers. Nearly 87% of the companies were positive about their entity’s outlook. These companies have a combined expected revenue growth rate of 5.2% for 2022 and also expect full-time employment to increase 3.4% over the next twelve months. The expected growth rate of product prices was 5.9%, an all-time high for the survey that began in 1997. This figure is consistent with numerous recent inflation indices that continue to indicate inflation that we have not seen in quite a long time. Another record high reported by the survey is that the respondents expect employee wages to increase 3.8% in the coming year. Similarly, the companies expect raw materials to increase at a pace of 6.5% and health insurance costs to increase a whopping 8.1%.

Given the above, what can your company do to be prepared for the near-term future, while keeping an eye out for the long-term, and how can HBK Manufacturing Solutions assist?

First, it is imperative that you review and update your budgets and forecasts for the coming year. In particular, sales forecasts, cash projections and inventory levels should be compiled and monitored. It is also recommended that tax projections be prepared as the year comes into focus. Companies using the LIFO method to account for inventory should integrate a LIFO projection with the tax projection, as inventory levels and materials costs may have a dramatic impact on LIFO in 2022.

We also recommend that your company review and update your strategic plan to adjust for any possible changes to the plan as a result of the expected circumstances. Reviewing and updating a strategic plan is always a good idea and now is as good a time as any, considering the constantly changing landscape.

As it becomes increasingly difficult to find, train and retain qualified employees, we recommend that companies evaluate their hiring, training and retention methods and look for new and innovative ways to enhance your workforce. Consider engaging an outside company that works with manufacturers to accomplish this goal.

Finally, review your capital investment requirements and plan accordingly. With the global supply chain issues, lead times have been stretched considerably. It is important that your capital investment requirements, sales projections, production and cash forecasts are properly aligned.

HBK Manufacturing Solutions has a team of experienced professionals that can help you with all of these items and more. Please contact us if we can be of assistance in helping your company thrive in 2022.

Speak to one of our professionals about your organizational needs

"*" indicates required fields

HBK uses the contact information you provide to send you information about our products and services. You may unsubscribe from these communications any time. For information on how to unsubscribe, as well as our privacy practices and commitment to protecting your privacy, check out our Privacy Policy.