There is much about the inflation reduction act that may still seem ambiguous. The main question (and concern) small business owners in the hospitality industry have is in regard to whether or not the cost of the inflation reduction act is passed to middle-income families making less than $400,000. The simple answer is no, this bill is not intended to increase the cost for small businesses within the hospitality industry. However, this review goes into further detail about the IRA’s benefits.
About The Inflation Reduction Act (IRA)
The Inflation Reduction Act, or IRA, is a United States law signed into law on August 16, 2022 by President Joe Biden. The law, which raises $737 billion in funding, has multiple purposes. As the name suggests, one of the primary objectives is to reduce the impact of global inflation within the United States. Other purposes include:
- Expand Medicare benefits
- Lower energy bills
- Make climate investments
- Lower healthcare costs
- Create manufacturing jobs
- Invest in disadvantaged communities
- Close tax loopholes used by the wealthy
- Protect families and small businesses making less than $400K
This bill was proposed by the Biden administration in response to the Build Back Better act that was voted down previously after it failed to receive the minimum vote threshold in the senate.
5 Inflation Reduction Act Benefits for Small Businesses
The benefits of the inflation reduction act include a sizeable investment into small businesses within the hospitality industry and tourism industry, an increase in the R&D tax credit, the creation of an even playing field among small and large businesses, the expansion of Medicare benefits, and the movement closer to the U.S. energy independence and clean energy. There are also many misconceptions and myths about the inflation reduction act and its impact on small businesses in the hospitality industry, which are addressed below as well.
The IRA Invests in Small Businesses
One of the most common misconceptions about the Inflation Reduction Act is that it will raise taxes and other costs for individuals who are making less than $400,000 per year. However, this is simply not the case. The misconception stems from a misunderstanding of how the IRA is funded. We dive further into funding sources below, but it is not in any way funded through personal tax increases on small businesses.
Instead, it does the opposite; it makes investments in small businesses in the hospitality industry. One thing that has become clear from the recent global inflation is that large corporations are seemingly unphased by rising costs (from a profit perspective). Unfortunately, small businesses are not as fortunate. The IRA aims to lower inflation and costs to provide much-needed relief for the middle and working classes.
The IRA Doubles The Refundable Research and Development Tax Credit
The Research and Development Tax Credit, also called the R&D tax credit, research and experimentation tax credit, or R&E tax credit, provides federal aid to small businesses in the hospitality industry that performs development, design, and research-related activities. The IRA doubles this tax credit from $250,000 to $500,000. Small businesses can use this for tax credit and relief for product development and technology investments (among other research and development investments).
The IRS Funding Does Not Target Small Businesses and Can Help Create an Even Playing Field
There is a sizeable increase in funding for the Internal Revenue Services (IRS) included in the Inflation Reduction Act. This funding will be used to hire approximately 87,000 additional IRS agents. This has led many to fear an increased risk of an audit. However, the bill does not intend to increase the tax scrutiny among small businesses within the hospitality industry.
Instead, it seeks to help them by targeting wealthier businesses and corporations that are not paying taxes as they should. Due to tax loopholes and a seemingly ease of tax evasion among wealthier corporations, many are creating a huge advantage for themselves, separating themselves from small businesses that are paying taxes as they should. This addresses this concern and helps give small businesses within the hospitality industry an improved ability to compete within their industry.
The IRA Expands Medicare Benefits
The IRA also expands benefits for Medicare recipients. Notably, it caps drug costs at $2,000 and allows medicare to better negotiate prices for 100 drugs that it selects. The provisions in the IRA are expected to save the average Affordable Care Act (ACA) recipient $800 a year in the marketplace. More than 80% of small businesses support the Medicare provisions that are included in this bill, according to a survey by the Small Business for America’s Future.
The IRA Moves Us Closer to Energy Independence and Clean Energy
The increase in energy costs has placed additional strain on small businesses within the hospitality industry. The IRA makes strong investments into clean energy that is more sustainable long-term. Small businesses that make investments in clean energy are also eligible for tax credits. For example, small businesses that make their rooftop solar and/or add heat pumps are eligible for up to 10 years of tax credits. There are also sizeable tax credits for small businesses and working-class individuals that invest in electric vehicles as well (up to $4,000 in tax credit).
Use The Resources Below for More Information
The Senate Democrats website provides a complete summary of the Inflation Reduction Act, including topline estimates, benefits, and more.
The White House lays out detailed information about precisely what is included in the Inflation Reduction Act.
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