2022 Inflation Reduction Act tax credits: What small business owners need to know in 2024

In August 2022, the Inflation Reduction Act, a new piece of legislation addressing some of the significant issues the United States is facing, was signed into law by President Biden. The legislation covered a myriad of topics that may impact your small business or you as a business owner. This includes sections dealing with health insurance, green vehicles, research investment, energy-efficient home improvement, and even business losses. The 2022 Inflation Reduction Act (IRA) increased Internal Revenue Service (IRS) funding, changed tax policy, and introduced new and expanded tax credits. These IRA energy tax credits and other tax incentives might benefit you and your business. Read on to learn more about the Inflation Reduction Act tax credits to be aware of in 2024.

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Health insurance for small business owners

Premium Tax Credit

Small business owner reviewing Inflation Reduction Act tax credits

As an entrepreneur, full-time freelancer, or small business owner, health insurance is probably a significant expense in your personal budget. The Inflation Reduction Act extends the Premium Tax Credit (PTC) healthcare provisions from the 2021 American Rescue Plan Act through 2025.

This credit reduces the maximum amount you pay for marketplace health insurance, calculated as a percentage of your taxable income. These percentages are determined using the annually updated Federal Poverty Guidelines. Though businesses themselves are not able to claim this credit, small business owners may be able to claim it for themselves and their families, if they qualify.

Federal poverty levelHousehold income you pay
Up to 150%0%
150 – 200%0 – 2%
200 – 250%2 – 4%
250 – 300%4 – 6%
300 – 400%6 – 8.5%
400% and above8.5%

*Percentage rates are fixed and will not be indexed for inflation

Simply identify your household size, then use that threshold and the chart above to determine your final marketplace health insurance cost ceiling. For example, in 2024 the poverty guideline for a household of three in the contiguous United States is $24,860 for premium tax credit purposes. If your household income was $64,000 this year, you would be at ($64,000/$24,860) x 100% = 257% of the Federal Poverty Level. Your marketplace healthcare costs would max out at .28% of your household income, or $64,000 x 0.0428 = $2,739 per year ($228 per month).

Green business vehicles

Credit for alternative fuel refueling property

If you purchased qualifying property to refuel or recharge an alternative fuel vehicle for your business, you may be able to take advantage of this clean energy tax credit. For the 2024 tax season, the credit provides either 6% or $100,000 of the costs associated with putting the property into service at your business if subject to depreciation — whichever is less. Just make sure to keep records related to your purchase and use of the alternative fuel refueling property!

For example, consider Todd, the owner of a small grocery store, who decided to install electric vehicle recharging stations in their parking lot at a cost of $80,000. $80,000 x 0.06 = $4,800. Their credit will be for this amount since it is less than $100,000.

Heads up — these rules apply through 2032. Make sure to discuss future additions with your tax pro to ensure your business remains in a favorable tax position.

Credit for clean vehicles

This credit for businesses and individuals tweaks an existing credit and changes the name to the Clean Vehicle Credit. The modified credit has two parts under Internal Revenue Code Section 30D, which can be combined for up to a $7,500 maximum:

  • A credit of up to $3,750 for vehicles meeting a critical minerals requirement
  • A credit of up to $3,750 for vehicles meeting a battery components requirement

There are several caveats to this credit to consider:

  • The vehicle must have been assembled in North America AFTER August 16, 2022
  • The purchase price of the vehicle can’t exceed $80,000 (vans, SUVs, pickups) or $55,000 (all other types)
  • The mineral and battery component percentages generally increase yearly until 2029 — if you are considering purchasing a vehicle in the future, make sure the vehicle meets the requirements in effect
  • To qualify for the credit, modified adjusted gross income may not exceed $300,000 for married couples filing jointly, $225,000 for heads of household, and $150,000 for single and married filing separate filers.

For example, if Sandra purchased a qualifying new electric vehicle that met the battery component requirement but NOT the critical minerals requirement, she would be limited to a $3,750 credit.

Used clean vehicle credit

This credit can only be claimed once every three years and covers 30% of the vehicle purchase price, up to a $4,000 limit. As with the Clean Vehicle Credit, modified adjusted gross income limits apply. These limits are $150,000 for married filing jointly, $115,000 for heads of household, and $75,000 for single and married filing separate taxpayers. The credit applies to purchases of a used electric vehicle with a model year at least two years older than the year of purchase, and the purchase price is limited to $25,000 or less.

Finally, the credit can only be claimed for vehicles sold by a dealer and on the first transfer. Work with your seller to make sure the used electric vehicle you are purchasing will qualify for this EV tax credit.

For example, if Jo purchased a three-year-old electric vehicle for $20,000 from a local dealer their credit would be $4,000 (since 30% of $20,000 = $6,000 — exceeding the max cap).

Credit for qualified commercial clean vehicles

If you use a green vehicle for your business, it may qualify for this credit! The credit is the lower of 15% of the vehicle’s cost (30% for a non-gasoline or diesel engine) OR the incremental cost between it and a comparable vehicle powered solely by a gasoline or diesel engine. The maximum credit PER vehicle with weight ratings under 14,000 pounds is $7,500, or $40,000 for heavier vehicles. Your clean fleet may just provide a huge tax advantage!

For example, Pat owns an environmentally friendly moving company and has committed to using only electric vehicles for its fleet. The moving trucks weigh over 14,000 pounds and cost $100,000 each, compared to $50,000 for a similar gas-powered truck. So, the company is eligible for the lesser of 30% of 100,000 = $30,000 or the incremental cost $100,000 – $50,000 = $50,000. They would qualify for a $30,000 tax credit.

Schedule a meeting with a Block Advisors professional today to discuss how these changes may impact your tax rate, tax breaks, and bookkeeping this year.

Research credit update

Increase in small business payroll tax credit for increasing research activities

This credit will be especially useful to some small businesses’ payroll taxes. The prior tax law allows qualifying small businesses (less than 5 years old and less than $5 million in gross receipts) to use up to $250,000 of the research credit towards their Social Security payroll tax liability. The new updated version allows these small businesses to use up to $500,000, first applying up to $250,00 against social security payroll tax liability and an additional $250,000 of research credit towards their Medicare tax liability. If your small business hasn’t had enough income tax liability in the past to fully utilize the research credit, that may change now with the new tax policy.

Energy-efficient home construction and lease

New Energy Efficient Home Credit

This credit is now extended for homes sold or leased to another person during the tax year for use as a residence. Current rules are as follows:

  • The credit amount increases to $500 or $1,000 for multi-family dwellings
  • The credit amount increases to $2,500 or $5,000 for single-family homes
  • The final amount depends on the energy-efficient features of the structure

For eligible contractors who sell or lease new energy-efficient homes, this credit could result in a significant reduction in your tax rate. If you think you qualify for this credit for tax purposes, be sure to consult your tax pro to clarify the requirements and details.

High-efficiency Electric Home Rebate Program

If you own a multifamily building that serves at least 50% low- to moderate-income households, you may be eligible to benefit from up to $14,000 of rebates for high-efficiency electric home upgrades such as:

  • Up to $1,750 for a heat pump water heater
  • Up to $8,000 for a heat pump for space heating and/or cooling
  • Up to $840 for an electric stove, cooktop, range, oven, or clothes dryer
  • Up to $4,000 for an electric load service center upgrade
  • Up to $1,600 for insulation, air sealing, and ventilation improvements
  • Up to $2,500 for electric wiring

Building owners carrying out qualified projects on behalf of low- or moderate-income households may qualify for these rebates if approved by the state’s energy office; owners should check the programs in their state for more information. However, it is important to note that this is NOT a tax event.

Excess Business Losses (EBL)

Limit on Excess Business Losses for Non-Corporate Income Taxpayers

Originally, this was planned to sunset in 2025; however, it was extended by the American Rescue Plan Act through 2026. Now, the Inflation Reduction Act further pushes that date through to the 2028 tax year.

So, who is subject to the Excess Business Losses limitation, and what does it entail? This rule applies to non-corporate income taxpayers, such as sole proprietorships, partnerships, and LLCs not taxed as a C corporation. It prevents a business from claiming a loss exceeding $305,000 for single filers or $610,000  for married joint filers (in 2024). While this limitation was put on hold during the pandemic to help impacted small businesses, it is now back in full effect. The rules surrounding Excess Business Losses are complex, even for large corporations. Make an appointment to discuss your unique situation with a Block Advisors Tax Pro.

The Inflation Reduction Act and your business: Where to go for more help

If you own a small business, the Inflation Reduction Act has the potential to influence your tax rate this year and in the future as both a personal income taxpayer and a small business owner. Let a Block Advisors tax professional help you navigate these tax changes, IRA tax credits, and other tax laws to get the best tax outcome for your small business.

Learn more today about how Block Advisors can help you and your business.

This article is for informational purposes only. The content may not constitute the most up-to-date information and should not be construed as legal advice. 


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