October 2022

As we approach the end of the 2021 tax filing season and shift focus to planning, we want to share updates on recent tax law changes that may affect you. President Biden signed the Inflation Reduction Act into law on August 16, 2022. The law enacted sweeping changes in areas including clean energy, corporate taxation, healthcare, and IRS operations. For additional information on these topics, please reference the White House’s update linked here.

Clean Energy

Federal tax credits for the purchase of certain electric and hybrid vehicles received a full overhaul effective January 1, 2023. The updated Clean Vehicle Credit retains the existing credit for certain new vehicles and expands eligibility to include used and commercial vehicles. General guidelines are outlined below:

New Vehicles

1. Final assembly must occur in the United States effective August 17, 2022.

2. The credit applies to SUVs, trucks, and vans priced under $80K and other cars priced under $55K.

3. Most battery materials and manufacturing must be sourced from and performed in North America.

4. Credit eligibility is limited to individual filers with adjusted income under $150K and joint filers with adjusted income under $300K.

5. The maximum available tax credit remains unchanged at $7,500.

Used Vehicles

1. Must be purchased after December 31, 2022.

2. The vehicle must be at least two years old and cost $25K or less.

3. Credit eligibility is limited to individual filers with adjusted income under $75K and joint filers with adjusted income under $150K.

4. The maximum available tax credit is $4,000.

Commercial Vehicles

1. Limited to new vehicles purchased after December 31, 2022.

2. Most fully electric vehicles are eligible for a credit equal to the lesser of $7,500 or 30% of the vehicle’s purchase price.

3. Most plug-in hybrid vehicles are eligible for a credit equal to the lesser of $7,500 or 15% of the vehicle’s purchase price.

The manufacturer cap that automakers including Tesla and General Motors exceeded will also be lifted, allowing their vehicles to qualify for credits again starting in 2023. In addition to the Clean Vehicle Credit, the Inflation Reduction act extended the credit for residential electric charging stations through 2033 and expanded credits for energy efficient home improvements (such as windows and doors) and solar installation. Certain home improvements are now eligible for a 30% tax credit, up from 10%. Certain solar improvements qualify for a 30% tax credit, up from 26%.

A link to a helpful, interactive website for more specific information on the above credits can be found here.

Healthcare

The American Rescue Plan of 2021 temporarily expanded eligibility for the Premium Tax Credit to include certain taxpayers whose household income exceeded 400% of the Federal Poverty Line. The Inflation Reduction Act extends these rules through the 2025 tax year. Under new law, Medicare can now negotiate the prices of some high-cost prescription drugs with pharmaceutical companies. Starting in 2025, Medicare beneficiaries will not have to pay more than $2,000 per year for their share of certain medications.

IRS Operations

The IRS has been notoriously backlogged, and the Inflation Reduction Act provides funding to improve the situation. $45.6 billion will be used for additional IRS enforcement over the next 10 years. An additional $3.18 billion is earmarked for taxpayer services.

A few other changes outside of the Inflation Reduction Act are worth noting:

Business Travel

The standard mileage rate set by the IRS typically sees updates annually, but increased fuel costs prompted a mid-year increase in 2022. The mileage rate for July through December 2022 increased to 62.5 cents per mile from 58.5 cents per mile for January through June.

Business Meals

The federal tax deduction for business meals was temporarily increased to 100% for 2021 and 2022 by the Consolidated Appropriates Act of 2020. Deductibility will revert to 50% effective January 1, 2023.

Bonus Depreciation on Business Assets

The Tax Cuts and Jobs Act of 2017 implemented 100% additional first year depreciation deductions (“bonus depreciation”) that allowed businesses to write off the cost of most depreciable business assets in the year they were placed in service. This allowance will decrease by 20% annually starting in 2023 until its eventual sunset in 2027. Large equipment purchases may still be eligible for full expensing under Section 179 or a combination of bonus depreciation and Section 179, but effective planning is key.

Oregon

For business owners taking advantage of the Oregon PTE program, remember to make your Q4 payments by December 31, 2022 rather than the typical estimate payment deadline in January. Payment must be made in this calendar year to claim the related tax deduction.

The Oregon Family Leave Act (OFLA) will take effect on January 1, 2023. The new law affects companies with 25 or more employees but includes an opt-in option for companies with fewer than 25 employees. For more information about cost, timing, and benefits, please visit this link.

We hope that these updates help you better plan for 2023. We look forward to developing an effective, personalized tax strategy with you ahead of the new year. Please reach out with any questions or concerns.

• New Vehicles Final assembly must occur in the United States effective August 17, 2022. The credit applies to SUVs, trucks, and vans priced under $80K and other cars priced under $55K. Most battery materials and manufacturing must be sourced from and performed in North America. Credit eligibility is limited to individual filers with adjusted income under $150K and joint filers with adjusted income under $300K. The maximum available tax credit remains unchanged at $7,500.

• Used Vehicles Must be purchased after December 31, 2022. The vehicle must be at least two years old and cost $25K or less. Credit eligibility is limited to individual filers with adjusted income under $75K and joint filers with adjusted income under $150K. The maximum available tax credit is $4,000.

• Commercial Vehicles Limited to new vehicles purchased after December 31, 2022. Most fully electric vehicles are eligible for a credit equal to the lesser of $7,500 or 30% of the vehicle’s purchase price. Most plug-in hybrid vehicles are eligible for a credit equal to the lesser of $7,500 or 15% of the vehicle’s purchase price.

This email is intended to provide a high-level summary of the more recent changes and updated guidance. As guidance may change, or the above may not be applicable to all situations, please contact us if you need assistance.