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The Inflation Reduction Act (IRA) was just passed by the U.S. senate and is expected to be signed into law this week. When this happens, there will be some notable tax changes. Here is a summary of the ones with the most significance for freelance business owners: 1. Enhanced IRS enforcement could increase your risk of an audit.The IRA has big time funding for the IRS to the tune of a $3.1 billion to increase for IRS taxpayer services, $45.7 billion for IRS enforcement, $25 billion for IRS operations support and $4.7 billion for IRS technology upgrades. This means the IRS is going to have more resources than they have in almost thirty years directed at ensuring no taxpayer is left behind (or able to hide) at least for very long. Not only could the full court IRS press mean more audits of small businesses, expedited action for late or non-payment of taxes with fines and penalties, it is likely also to mean that the IRS will be able to monitor online app sales, cryptocurrency transactions, and other less regulated business transactions with enhanced technology expressly for this purpose. The bottom line is that as a freelancer with a business, you definitely need to be upfront in reporting all income as well as be meticulous in your recordkeeping. 2. More tax credits for energy-efficient purchases including new and used electric cars.The new law, when enacted, has a far-reaching and expansive list of tax credits to support energy-efficiency and climate preservation measures such as:
If you’ve been thinking about making upgrades to your home for energy efficiency or purchasing an electric vehicle, then now may be the time to do it based on the tax incentives included in the IRA. However, there are a few finer points to be aware of on the qualifications for the electric vehicle tax credits:
3. Health insurance subsidies under the ACA are extended.The Act includes an extension of the temporarily expanded health insurance subsidies, originally instituted as part of the American CARES Act (ACA) as tax credits, that were put in place for 2021 and 2022 as part of Covid relief. There are more generous subsidies in the Act which remain available through the end of 2025. If you are self-employed and are getting your health insurance through the government health insurance exchanges with subsidies, then you should be able to avoid any significant premium increase, all else being equal in terms of your coverage, etc. 4. An increase in R&D tax credits against Medicare taxes.As you may be aware, businesses can claim research and development tax credits against income tax that is based on their qualified research expenses of up to $250,000. The IRA would allow a small business, defined as a business with less than $5 million in gross receipts and that is under five years old, to apply for up to another $250,000 of the research credit toward its Medicare Hospital Insurance tax for taxable years beginning after December 31, 2022. The credit cannot exceed the tax imposed for any calendar quarter, with unused amounts of the credit carried forward. The total available R & D tax credit is $500,000 if a business qualifies with their activities. Under the previous R&D credit, businesses had the option to apply their tax against the Social Security portion of payroll taxes and this new credit provision has been expanded it to include the Medicare portion of payroll taxes. Stay tuned for more updates on the Inflation Reduction Act and any changes enacted before it is signed into law. The majority of these changes are anticipated to be effective for the tax year starting January 1, 2023. via Freelancers Union Blog https://blog.freelancersunion.org/2022/08/25/four-key-tax-changes-for-freelancers-in-the-new-inflation-reduction-act/
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AuthorI have 5+ years experience working as a medical transcriptionist. When I am not working, I enjoy sports like playing basketball or judo. I love making friends and connections. Archives
April 2023
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