How the IIJA & Corporate Tax Rate Are Impacting Tax Planning

Around this time last year, we were anticipating the possibility that new legislation from the Biden administration would create significant change for both individual and corporate taxpayers. While major pieces of legislation have been signed into law over the last 12 months, one of the changes that business tax advisors and taxpayers had been bracing for did not come to fruition. For now, the corporate tax rate remains unchanged. 

 Last November we told you about the possible implications of the Infrastructure Investment and Jobs Act (IIJA) and how its enactment could affect businesses as they approached year-end tax planning. Business leaders are once again planning for the end of one tax year and the start of another. How has recent legislation affected corporate tax planning? What is going on with the corporate tax rate? And what else do business leaders need to know? 

 A Legislative Timeline Refresher

There has been a tremendous amount of news and information coming at us out of D.C. over the last 12 months. It may be useful to have a brief refresher of some key legislative movements that have happened in Washington. 

  • November 15, 2021: President Biden signed the $1 trillion bipartisan Infrastructure Investment and Jobs Act (IIJA) into law.

  • November 19, 2021: The Build Back Better Act (BBBA), a roughly $2 trillion climate change and social policy bill, passed the House.

  • December, 2021: Senator Joe Manchin (D-WV) withheld support for the Build Back Better Act because of concerns it would increase inflation, among other reasons. In a split Senate, his opposition stalled the Act from moving forward. 

  • August 16, 2022: President Biden signed the Inflation Reduction Act (IRA) of 2022 into law, after Manchin and other Senators agreed to support a version of the Build Back Better Act that focused more narrowly on healthcare spending and energy costs.  

What Are The Implications for Corporations?

Both the Infrastructure Investment and Jobs Act and the Inflation Reduction Act may have implications for individual taxpayers, including high-income taxpayers. Increasing tax revenues is a key element of the Biden administration’s plan to fight inflation under the IRA. But no individual making under $400,000 annually will see a tax hike under the IRA, and most businesses will not see higher tax rates either.    

An increase to the corporate tax rate is something that has concerned  business owners since the proposal was first floated by the Biden administration. Remember that the top corporate tax rate was 35% before the Tax Cuts and Jobs Act dropped it to 21% in 2017. President Biden has long pushed to split the difference between the pre-TCJA and current rates, by setting the corporate tax rate at 28%. That rate hike was part of earlier versions of the IIJA and BBBA, but lawmakers eventually dropped the corporate tax rate increase for both pieces of legislation. The IRA also included no corporate tax rate increase. So for now, the corporate tax rate remains steady at 21%. 

Only the very wealthiest corporations may see their tax obligations change under the Biden administration’s newest legislation. One way the IRA bolsters tax revenues is by establishing a 15% corporate alternative minimum tax on those few corporations that generate more than $1 billion in earnings each year. This AMT (alternative minimum tax) is designed to ensure that even the wealthiest and most powerful corporations are not able to avoid paying their fair share in taxes. 

What Else Should Your Organization Know About Tax Planning and Recent Legislation? 

Though the Inflation Reduction Act did not increase the corporate tax rate for businesses that do not make billions in profits, this legislation did include one critically important element that may affect how your organization approaches tax planning. Specifically, the IRS is going to increase revenue by cracking down on tax dodgers—which means that both individuals and corporations need to make sure their houses are in order. 

The IRA appropriated nearly $80 billion to the IRS over the next 10 years, with $45.6 billion earmarked for tax enforcement activities like hiring new enforcement agents and improving investigative technology. In other words, we anticipate the IRS is going to be looking even more closely at the way wealthy taxpayers and corporations pay taxes in the very near future. 

Now is the time to make sure all your business’s tax planning and tax reporting processes are above reproach, just in case the IRS elects to audit your organization in the next few years. 

Talk to Your Tax Advisors for Guidance

L&H stays current with everything happening in Washington so you don’t have to. Your organization’s year-end planning strategy may need to shift every year depending on what is going on both internally and legislatively. Considering how quickly things change, keeping up with the tax planning and compliance implications of every new piece of legislation becomes challenging.

Don’t waste time and resources trying to figure out how to stay compliant with current regulations. Simply ask your tax advisors at L&H for specific guidance. If you have questions about the corporate tax rate or any other element of tax planning for your business, contact me today. 


Steven J. Haynes, MBA, is an administrative partner at Livingston & Haynes. Steve’s firm, Emerging Business Partners (EBPI), became an affiliate of L&H in 2007. Steve specializes in bookkeeping, payroll, and business advisory services, including tax, M&A, and funding and equity transactions, for technology, entrepreneurial, and emerging growth firms.

 

Myah Shein