After the president signed the new Inflation Reduction Act, there is something that you should know about. Yes, it is intended to improve energy, healthcare, and taxes. The legislation includes $80 Billion in increased funding over ten years. 

What does this mean for the average American? What does it mean for the small business and for the massive corporation? In this post, I will explain to you what this is, how this $80 Billion will be used, and why you should protect your money!!

This ACT is intended to do everything except control inflation, which is funny, since it is called Inflation Reduction Act. It’s main purpose is to collect money. They say it could bring an additional $203 Billion dollars in increased revenue. But as you may have heard, they are planning to bring in 87,000 new IRS agents to audit everyone’s taxes. 

So, how is this going to impact the average American? They are saying that if you make less than $400,000 a year you shouldn’t worry. Do you really think that if someone making let’s say $250,000 a year doesn’t pay his taxes properly he won’t be audited? Think twice. 

Out of the $80 Billion for the IRS, $45.6 Billion is designated for enforcement. So over the years the audits will become more frequent. The 87,000 agents come handy because they say many are retiring or changing jobs. It is a plan to keep up with the agency. 

And the positions added with this funding is not only enforcement agents, but also include legal support and investments in technologies that help investigations. The question here is if more audits means more focus into low and middle-income earners. While they say NO, data from the past shows that lower income taxpayers have seen higher than average IRS audit rates. Other data shows that IRS audit rates for people making less than $25,000 a year were five times higher than audit rates for high income taxpayers. 

Let me talk a little bit about this. Who do you think is more susceptible to being audited and hurt, a person making between $25 and $100k who has problems paying taxes or a big business or deep pockets individual who hires a lawyer and tax expert for $500 an hour? They are always going to apply the law to the weakest. It’s survival of the fittest here. 

What the IRS wants to do is close the gap of an estimated $600 Billion dollars in taxes. The ACT also provides $4.8 Billion dollars to modernize business systems. So, changing phone systems, and computers that froze on customers. The IRS still uses technology from 50 years ago. 

And what happens is we have tremendous backlogs in the returns. So, the $3.2 Billion dollars for taxpayer services will improve customer service. Having more people to answer the phone during tax season for example. It will avoid the IRS having millions of unprocessed returns like they did in 2022.

So, could you get audited as an individual making less than $400,000 if your taxes are not in order? Yes of course. But there is something called Tax Relief Program for people that owe more than 10 grand in taxes. So, go to the IRS website and fill out the questionnaire to see if you apply. 

What happens with your business and with large corporations? Well, if you are a small business owner and have your taxes in order, you have nothing to worry about. There are also tax relief programs for businesses and loans so also go to the IRS website and SBA and check them out. 

But, for large corporations, let’s say an Apple or a Google. Their revenue surpasses 1 Billion dollars a year. What happens with companies like this is 2 things: and I am not saying these specific 2 companies, but massive ones with hundreds of thousands of employees. There are two ways a company like this pays less tax than what they are supposed to pay.

One: They report their earnings in other countries. As a US company, if you make a million dollars in India, you are required to report that million dollars in the US, and pay the 21% US corporate tax. But if the company is not based in the US but in the Virgin Islands, or Cayman Islands, then those places have no tax. The headquarters are in the US, but the company is foreign. That’s a loophole. They know it exists, it’s been there for 100 years, no one does anything to close it. 

Second: Taxes on C-Corps are based on EBITDA, not revenue. What does this mean? I made a million dollars, I should pay 21% or $210,000 on my revenue, right? Well, not exactly. Listen, before reporting the million dollars as EBITDA, I go and buy a piece of Real Estate that costs $900,000. It’s for the company. So, my EBITDA is only $100,000 what was left, and I pay 21% of those $100,000 which is only $21,000. 

This Inflation Reduction Act says companies making more than 1 Billion Dollars will pay a minimum 15% tax on earnings. BINGO!! BULLSEYE!! What a moment!! Not so fast! The 15% is based only on ADJUSTED EARNINGS, not GROSS EARNINGS. This means the government is allowing companies to take deductions before showing the taxes they have to pay. Very skilled lawyers and tax accountants will reduce the tax burden to the limit. Just imagine a Billion-dollar company has an average of 5 employees making 6 figures working non-stop on their taxes all year. 

So, if we know the main loopholes for tax evasion which are tax havens, foreign accounts, and minimizing EBITDA with deductions, why don’t we close them? Because we can’t. One thing is that we come out saying on the microphone to sound fancy and impress the average JOE and another thing what makes companies fire people. 

If you tell a company that their tax bill will go up 20% because you are closing all the loopholes, then they will get rid of 20% of their workforce and that will become a bigger problem for the economy. What do you do? Nothing, just bark and bark but never bite. 

If your only source of income is a W2 from a job, then you have nothing to say. Why? Because you don’t pay your own taxes, someone else takes them from you and pays them. If you receive 1099’s, or produce a K1, then hire a professional that can assist you to pay your fair share of taxes. I love the say that says, “you should pay your fair share of taxes but never leave a tip”.

But remember, TAKE CONTROL OF YOUR LIFE AND TAKE CONTROL OF YOUR MONEY!!