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Income Tax

The Tax Blotter – Aug. 2022

The Tax Blotter is a bite-sized round-up of recent tax issues.

The Tax Blotter is a bite-sized round-up of recent tax issues.

The Inflation Reduction Act (the IRA) targets a 15% minimum tax at corporate giants, but the new law also includes several tax provisions of interest to owners of smaller business operations.

Reconsider stock buybacks.

A last-minute addition to the new law might discourage corporate stock buybacks. Traditionally, a corporation may buy back stock from shareholders, as opposed to issuing dividends. Dividends are currently taxable, while stock buybacks result in capital gains that may go untaxed for years—perhaps forever. But the IRA imposes a 1% excise tax on corporate stock buybacks, beginning in 2023.

Watch out for excess losses.

The IRA extends the limit on excess business losses. Under a provision in the Tax Cuts and Jobs Act (TCJA), owners of pass-through entities can’t deduct business losses above an annual threshold against non-business income. The indexed thresholds for 2022 are $270,000 for single filers and $540,000 for joint filers. This TCJA change, which was subsequently extended through 2026, will now remain in effect through 2028.

Do your research.

The tax law rewards companies on the cutting edge. For example, a qualified start-up business can choose to use up to $250,000 of research and development (R&D) credits to offset payroll taxes. The election is available to businesses with annual gross receipts of $5 million or less. Even better, the IRA increases the $250,000 cap to $500,000 after 2021. Note: To qualify, the start-up can’t have income prior to the last five years.