4 Ways the 2022 Inflation Reduction Act Can Benefit Your Small Business

by | Sep 22, 2022 | Taxes

If you’ve seen the news lately, you know the Inflation Reduction Act is the largest climate and clean energy bill passed in US history. This 755-page bill is full of climate investments, tax credits and incentives, new regulations, and health care changes— all aimed at combating climate change and aiding in deficit reduction.

Note: The title of this bill suggests it’s all about curbing inflation. However, the bill doesn’t technically include measures that directly impact inflation. A better way to describe this bill would be to call it something like the Giant Bill of Tax and Healthcare Changes to Ask Your Cook Wealth Advisor About. 

While large corporations are the most likely to be impacted by the Inflation Reduction Act, particularly through the bill’s minimum corporate tax and more closely regulated stock buybacks, many small businesses have the potential to significantly benefit from some of the Inflation Reduction Act’s tax credits and incentives.

If you own a small business, here are four ways the 2022 Inflation Reduction Act may benefit your company’s bottom line:

1.  By reducing health care costs— for you and your employees

A significant portion of the Inflation Reduction Act is dedicated to making health care more affordable for individuals and businesses. Included in the bill is a measure to extend and expand several Affordable Care Act subsidies that make premium health insurance more affordable for those who purchase it through the healthcare marketplace.

Now that these health insurance subsidies are extended through 2025, business owners, consultants, entrepreneurs, and self-employed individuals will have greater access to affordable insurance— covered by the ACA premium tax credits.

While more affordable health insurance premiums may not directly benefit high income entrepreneurs and business owners, lower prices will help the contractors, freelancers, and part-time workers that support America’s 31.7 million small businesses. The health care measures included in the Inflation Reduction Act are expected to save each individual who purchases insurance through the healthcare marketplace an average of $800 per year. That allows small businesses (especially those that don’t offer health care benefits) to retain more of their valuable talent, while expanding the pool of workers who can afford to pursue entrepreneurial and contract opportunities.

2. By increasing funding for clean energy production

 Another significant portion of the Inflation Reduction Act focuses on increasing the United States’ energy independence. With energy costs rising and greenhouse gas emissions contributing to the climate change crisis, several provisions encourage individuals and companies to find cleaner sources of energy and reduce their energy spending.

The clean energy-related provisions also include incentives and tax credits that some small businesses may be eligible to take advantage of, including:

  • Tax incentives for businesses that use lower-carbon and carbon-free energy sources
  • Credits for businesses that invest in wind, solar, and geothermal energies
  • Tax credits for commercial buildings that become more energy efficient
  • Tax credits for businesses that make zero-emissions technology, like electric forklifts and solar-powered equipment

These measures aim to reduce energy costs for businesses and individuals now and in the future. As green energy technology becomes more advanced and affordable, our energy security will increase as our reliance on fossil fuels decreases. 

3. By (hopefully) improving the IRS’ speed and efficiency

The Inflation Reduction Act also includes a significant expansion to the IRS’ funding. You may have seen headlines saying the IRS is getting $80 billion to add an army of 87,000 new agents who can’t wait to audit your business. But in reality, that funding will be disbursed over the course of a decade— and a lot of it is going towards hiring support employees like janitors, front desk administrators, and customer service support. And while overall audit activity may increase, according to the Biden administration, auditing levels will not change for those making under $400,000 a year. 

As the IRS brings in more support staff, we hope it will improve the agency’s efficiency and processing times. For small business owners, that means a simpler tax season, quicker resolutions, and the chance your Cook Wealth Advisor can reach a real IRS agent on the phone when you need an answer or update.

4. By increasing demand for “green” products and services

The Inflation Reduction Act includes dozens of credits and incentives that encourage both individuals and businesses to “go green”. Here are a few of the most straightforward tax benefits:

  •  A 30% tax credit for upgrades that improve your home’s energy efficiency, including installing better insulation, exterior doors, and windows.
  • A 30% tax credit for installing clean energy technologies, like heat pumps, biomass stoves, and boilers.
  • Another 30% tax credit for renewable energy equipment that reduces your carbon emissions, including solar panels and wind or geothermal-powered equipment
  • An expanded clean vehicle credit for purchasing new or used electric vehicles

It’s important to note that every tax credit and incentive has a cap, and some credits are only available to those under a certain household income. Before you go out and buy a new EV or brand new windows, ask your Cook Wealth Advisor which credits and purchases make sense for your family. 

As more consumers make buying decisions that take advantage of these tax credits, small businesses in related industries, like remodeling services, home stores, car dealerships, manufacturing facilities, and contractors, will benefit from the increased demand. Measures like this have the potential to stimulate greater economic activity in previously cost-prohibitive industries, like expensive eco-friendly products and processes.

As an added benefit, several of these tax provisions will be in place for a decade or longer. That consistency allows small businesses to make well-informed decisions about their production goals, growth trajectory, and marketing strategy. It also gives consumers time to plan ahead and save for higher ticket items, like electric vehicles and home upgrades, while still taking advantage of the tax credits.

Curious how the Inflation Reduction Act specifically impacts you and your business? Talk to a Cook Wealth advisor

It’s important to note that there are hundreds of expanded tax credits, tax increases, incentives, and regulations included in the Inflation Reduction Act. To understand exactly which measures apply to you and your business, talk to your financial and tax advisor as soon as possible. Some tax credits and incentives are only available in 2023 and beyond, while others require action in 2022. To ensure you’re getting the best possible benefits— and reducing your tax burden along the way— meet with your advisor to discuss your unique situation. 

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