How the New Inflation Reduction Act Can Affect Your Taxes as an Entrepreneur with Jayden Doye

Welcome to another episode of Launched & Legal with Dayna Thomas, Esq., entrepreneurship attorney and law firm coach. Launched & Legal is an Atlanta Small Business Network original series dedicated to bringing entrepreneurs and business owners the best practices and tips for strategizing, legalizing, and monetizing their ventures. Today, Dayna is joined once again by Jayden Doye, expert accountant and the President of Prestige Accounting Solutions, who discusses the new Inflation Reduction Act.

If you have questions or comments about today’s show, send Dayna a message or comment on Instagram @daynathomaslaw.

Transcription:

Dayna Thomas, Esq.:

Hi everyone. I’m Dana Thomas Esquire and welcome to Launched & Legal, where it’s my mission to help you strategize, legalize, and monetize your business. I’m so excited that you’re watching because today and in every show I’ll be sharing the best practices and tips to take your business and brand to the next level.

One thing I know for sure about being a business lawyer is that taxes is a different lane. Here to give us an overview of one of the most recent tax law updates that affects entrepreneurs is Jayden Doye. Jayden, a returning guest on the show, is the president of Prestige Accounting Solutions. Today, he’ll be introducing us to the new Inflation Reduction Act and how it can affect your taxes as an entrepreneur. Jayden, welcome back to the show.

Jayden Doye:
Thank you. Thank you for having me.

Dayna Thomas, Esq.:
I’m so excited that you’re here because taxes and it is not a secret, is not my thing, and that’s important for business attorneys to make that clear to their clients that I do business law. I know a little bit about taxes from my own personal experience as an entrepreneur, but as far as teaching about taxes or advising about taxes, my disclaimer is I’m not a tax attorney and I’m not an accountant, but we have an accountant here in you. So I’m so excited that you’re back because there’s some new news that you need to share with us.

Jayden Doye:
Absolutely.

Dayna Thomas, Esq.:
And so I’m going to treat this show as you co-hosting with me.

Jayden Doye:
Okay. I could do that. I could do that.

Dayna Thomas, Esq.:
Absolutely. So we want to see more of you, and so we’re going to co-host today because this is definitely something that is new to me as well. So I’m so glad that you’re on the show because we need the people to know about these tax laws and things like that. So I know what we’re going to talk about is the Inflation Reduction Act, right?

Jayden Doye:
Yes.

Dayna Thomas, Esq.:
Okay. I know nothing about it.

Jayden Doye:
Okay.

Dayna Thomas, Esq.:
So tell us where we start with that. What is that?

Jayden Doye:
Okay, so let me give you a summary. So President Joe Biden signed the Inflation Reduction Act into law and this new law passed with majority Democratic support in the Senate and the House. More than $430B is in this package and is expected to reduce the deficit that we have by more than $300B over the next decade. The new law includes a $369B investment in climate and energy policies, $64B to extend a policy under the Affordable Care Act to reduce health insurance cost and a 15% corporate minimum tax aimed at companies that earn more than $1B a year. Broadly, that spending would be in the form of tax breaks and rebates for households that buy electronic vehicles and make their homes more energy efficient. And a three year extension of the current Affordable Care Act subsidized health insurance.
The $437B spending package is expected to raise $737B in revenue over the next decade. The biggest share coming from reductions in drug prices for Medicare recipients and tax hikes on corporations. Roughly $124B is expected to come from increased IRS enforcement, meaning tougher and more frequent audience for the wealthy, it’s projected to reduce the deficit more than $300B over a decade.

Dayna Thomas, Esq.:
First of all, thank you for that because we really do need the breakdown. So we’re going to dive a little bit deeper.

Jayden Doye:
Okay.

Dayna Thomas, Esq.:
You mentioned more audits for wealthy. Wealthy is subjective.

Jayden Doye:
Okay.

Dayna Thomas, Esq.:
Well, just what do you think about what the IRS thinks is people considered wealthy?

Jayden Doye:
Well…

Dayna Thomas, Esq.:
Just your thoughts, your opinion.

Jayden Doye:
Well, honestly, a lot of rumors have been circulating that people under $400,000, there’s going to be more audits on that population. However, if we historically look at the numbers as far as the income of the people that have been audited historically, you will notice that income range of under $400,000, it’s often not the target for IRS audits. So I think that they will actually be looking at companies that make over a hundred million, I think when they say wealthy, that’s where they’re looking.

Dayna Thomas, Esq.:
Okay, that’s helpful. Okay. Because some people think they’re wealthy and they’re going to be nervous, but a hundred million is wealthy. We’re good there.

Jayden Doye:
Right. Right.

Dayna Thomas, Esq.:
At least for now. We’ve been speaking in at least for now. So you mentioned about the corporate minimum tax, right? So tell us about that. And even we have a show where we talked about a lot about corporations. So tell me about the corporate minimum tax or tell our viewers.

Jayden Doye:
Yeah, absolutely. So companies that make more than $1B a year will now pay a minimum tax rate of 15% as well as 1% on stock buy backs. Those tax reforms aimed mostly at the largest US corporations like Google’s parent Alphabet, JP Morgan Chase, and Facebook’s parent company, Meta will reduce the federal deficit by estimated $300B over the next 10 years.

Dayna Thomas, Esq.:
Wow. So when we hear the word corporate, does corporate mean only corporations or does that mean it can affect LLCs? Break that down for us.

Jayden Doye:
So that’s just going to affect corporations. So as a small LLC, most people won’t have anything to worry about as it pertains to that. Absolutely.

Dayna Thomas, Esq.:
And Even LLCs can be bigger LLCs. There’s many multimillion dollar companies that are LLCs. So this may or may not affect them. What do you think?

Jayden Doye:
Well, if they’re taxed as a C corporation, then yes.

Dayna Thomas, Esq.:
Okay. They will.

Jayden Doye:
And usually, because there are tax advantages of having a C corporation, once you get into a certain income threshold, I think that most of them end up crossing over to a C corporation.

Dayna Thomas, Esq.:
Okay. Yes, they do. Especially after a certain period of time, you’re making more money. You need to leverage the different tax strategies. So Jayden, I have heard a little rumor that the IRS is going crazy with hiring something about 87,000 new tax field agents. That sounds scary because to me that sounds like more audits, right? So tell us about that. Is that true? And if it is, how does that affect taxpayers?

Jayden Doye:
Well, I’ll say this. When most people think about it, they think of an army like in 300, this is Sparta and the IRS hounding down on-

Dayna Thomas, Esq.:
They’re coming for us.

Jayden Doye:
Right. On business owners that make less than $400,000. But that’s really, I don’t believe that to be the case because if you read the fine print, it actually says that 87,000 that they plan to hire is going to be over the next 10 years. Then we have to do some math. If you look at retirement age and you subtract that from 2022, you’ll realize that we are now get to the baby boomer age. So many baby boomers are actually going to be retiring over the next 10 years.

Dayna Thomas, Esq.:
Okay. So it’s replacing people. Okay.

Jayden Doye:
So if we’re being a hundred percent honest, I don’t estimate that this will put a dent in anything that the IRS is doing because just as fast as they’re hiring, people will be retiring.

Dayna Thomas, Esq.:
I like that. So something that you said jogged my memory about something that I know or have heard of. It may or may not be related to the Inflation Reduction Act, but it is related to the auditing that we’re talking about. So when LLCs elect to be taxed as an S corp, I have heard that S corps are more likely to be audited since it does provide a tax break through instead of being a pass through entity. What do you think about that?

Jayden Doye:
Well, the data actually shows the opposite. So the data shows that sole proprietorships have historically been audited more than S corporations. And you have to think about it, most people that are filing a sole proprietor tax return are usually doing it themselves, or they’re working with someone that may not be the most ethical tax preparer. Once we get into S corporation status, usually that taxpayer is working with a CPA, a EA, someone with a little bit more knowledge and ethics as it pertains to tax preparation.

Dayna Thomas, Esq.:
And that makes perfect sense. So I’m going to break it down. For those of you who are watching. So if you are a sole proprietor, meaning you have not filed any business entity or you have an LLC, and you are a single member LLC. By default, you’ll be taxed as a pass through entity, meaning whatever the LLC makes, you make as an individual. Correct.? Okay. So there is an option to elect with the IRS to be taxed differently. You can be taxed as an S corp. It doesn’t mean you’re changing your business structure from an LLC to a corporation. Your company is still in llc, but you can be taxed as an S corp and if your revenue reaches a certain level, that might be a good tax decision for you. And so what I was saying is I heard that rumor that when you’re taxed as an S corp, you get more auditing. But he just said that is, Jayden said that’s the opposite. So that’s good to know, Jayden. So I think that a lot of companies don’t know, or LLCs don’t know about S Corp. So definitely look into that.

So I want to talk more about the Inflation Reduction Act. Can you break it down a little bit more in terms of is this something that affects small business owners or could it affect them in the future? What is the relevancy between this new law and small business owners that may be single member, maybe they have two or three partners. Tell us about the connection there, if any.

Jayden Doye:
I would say small businesses can actually take advantage of the energy efficiency credits. So there are a couple of different ways that they can take advantage of that. One way would actually be to get an electronic vehicle. So previously, there were tax credits for electronic vehicles, but now that this has been put in place, this is actually going to replace all of that. So previously, the credits actually maxed out on certain manufacturers, and now we will see that certain manufacturers, if you buy certain cars, you will be eligible for that federal credit. So that’s a good thing.

Dayna Thomas, Esq.:
Wow. That is a good thing. Because we’re always looking for ways for tax benefits or credits, and usually it seems like that information is just not available to small business owners and it’s more available to big businesses. But part of that is just having the right accountant. So I think that this conversation was really important because it’s, I think, the two roles or people that you should have on your team as an entrepreneur is an attorney and an accountant, especially for things like this. Because if we were trying to do taxes on our own, and we may not be aware of the Inflation Reduction Act, right? This is something that is brand new and you as a very awesome, prestigious, like your business name accountant, then it’s helpful to have someone with that type of experience. So anything else that we need to know about the Inflation Reduction Act so that we can do business better?

Jayden Doye:
I would say stay on the lookout for any changes on the IRS website. The IRS is now becoming more user friendly and they are putting updates on their website and their search feature is actually way better than it used to be. I’m very happy about that. So I would definitely recommend as we are going into the fourth quarter, to make sure that you check out the IRS website for certain updates so that you can be prepared coming into the new year.

Dayna Thomas, Esq.:
Awesome. Well, that is so good to know. And how can viewers keep in touch with you and work with you in the future?

Jayden Doye:
Absolutely. They could go to my website, accounting-atlanta.com. That would be the best place to find all about myself and my firm and to contact us to work with us.

Dayna Thomas, Esq.:
I’m so excited. You got a wonderful domain name.

Jayden Doye:
I do. Right?

Dayna Thomas, Esq.:
Accounting-atlanta.com. Well, thank you so much, Jayden. I would love to have you back again. If there’s anything else we need to know about new laws and just how to be more efficient in our taxes and to prepare, please let me know. We’d love to have you back.

Jayden Doye:
Absolutely. Thank you.

Dayna Thomas, Esq.:
Well, I hope today’s show help to educate and inspire you as you pursue your business goals. Be sure to share today’s show with someone who can benefit and visit MyASBN.com and subscribe. If you have any questions or comments about today’s show, I would love to hear from you, send me a message or comment on Instagram at @daynathomaslaw. Remember to tune in next week and every week to make sure your business is launched and legal.


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