Join host Jarrod as he welcomes special guest CPA Steve Levy to delve into the intricacies of the Inflation Reduction Act of 2022. In this episode, they break down the key components of the act and discuss its implications for businesses and individuals alike.
Announcer:
Hello, everyone. Welcome to The Millionaire Dentist podcast, brought to you by Four Quadrants Advisory. On this podcast, we break down the world of dentistry, finances, and business practices to help you become the millionaire dentist you deserve to be. Please be advised we do speak with an honest tongue and may not be safe for work.
Jarrod Bridgeman:
Hello, welcome to the next episode of The Millionaire Dentist. I am your host, Jarrod Bridgeman. Casey Hiers is out to lunch for his birthday today. So happy birthday, Casey. So I'll be filling in for this whole podcast here. Today, I do have a special guest, Steve Levy. He is our tax guy, basically, right?
Steve Levy:
Tax guy, accounting guy. I'm your guy.
Jarrod Bridgeman:
Whatever you need, he pretty much knows it all, I feel like. Also a great singer. This summer, I don't know if you remember, but we did an outing at the local baseball game and Steve sing the national anthem.
Steve Levy:
That was a lot of fun.
Jarrod Bridgeman:
Made me believe in America again.
Steve Levy:
There you go.
Jarrod Bridgeman:
Steve, what did you want to talk about today?
Steve Levy:
Well, speaking of America and Congress and presidents and all that.
Jarrod Bridgeman:
All those fun things that bring up nice, happy talks during family dinners.
Steve Levy:
Of course, of course. There was a recent, a big piece of legislation passed called the Inflation Reduction Act.
Jarrod Bridgeman:
That sounds like it's a good thing, right?
Steve Levy:
It does. The thing is, you never know what's going to really reduce inflation. It has good intentions, but it probably doesn't have a lot to do with inflation necessarily.
Jarrod Bridgeman:
Okay. So I remember seeing some of this on the news. When was this passed?
Steve Levy:
It was actually passed August 16th. So pretty recently. And it was quite the political-oriented passage in that things were pretty much split down whatever party they were at.
Jarrod Bridgeman:
So it was right down the party line.
Steve Levy:
It was, with the vice president being the deciding vote for the Senate. And then all Democrats saying yes and all Republicans saying no. But that's beside the point. It's in place. And it's got a lot of interesting things in it.
Jarrod Bridgeman:
So we can go with both the interesting and the non-interesting, of course. But what's in this law?
Steve Levy:
Well, it's not a lot of real inflation type of things, I would say. Because there's lots of factors that contribute to inflation. So you can't address that all in a legislation. And the congressional budget office says it might decrease the deficit though by a hundred billion dollars over the next decade. So that's a nice thing. It's pretty sweeping law with, it's got social, climate, some tax provisions included and also wants to make healthcare and prescription drugs more affordable, wants to fight climate change. It also has a minimum tax on really large corporations. Not the S corporations that we have with our practices.
Jarrod Bridgeman:
So I'm talking big like Fortune 500.
Steve Levy:
That make a billion dollars a year, usually publicly traded, that type. And a lot of provisions won't kick in until a few years down the road, for instance. We'll get into it a little more. Caps on drug prices for seniors. That won't happen until 2025. So it's really wide-ranging.
Jarrod Bridgeman:
That seems like a benefit considering that most senior citizens are on a fixed income.
Steve Levy:
Absolutely. And a lot of the drug prices for them are pretty astronomical.
Jarrod Bridgeman:
So what are some good highlights for this one?
Steve Levy:
Well, I'll just get out of the way the corporate one that doesn't really apply, but it's a 15% minimum tax on corporations, which it basically eliminates some deductions for them so that they have to pay 15% in general. There's no increase though on taxes for individuals and households. So that's a great thing. The prescription drug price reform. So one aspect of that is Medicare can negotiate the price of prescription drugs, bring down the prices in general for those that are paying for it. And Medicare recipients will have a $2,000 cap on their out-of-pocket prescription drug costs starting in 2025.
Jarrod Bridgeman:
Okay. And that's just across the board, 2000 cap, like if they have 10 prescriptions or two prescriptions.
Steve Levy:
That's it. That's all they're going to have to pay out. So obviously someone else is going to have to foot that bill. So that's essentially the government that's going to have to foot it.
Jarrod Bridgeman:
And with all the boomers out there, it's going to be me.
Steve Levy:
Possibly. There's also IRS funding, which they've been begging for because they've been buried. And we all know that. In some ways it was to our benefit that they were buried. But most of the time it was impossible to get to reach them. But they're going to have a $80 billion investment in the IRS, mainly from staffing, over the next 10 years. And we'll get into what that impact is later.
Another big one is the Affordable Care Act subsidy extension. There have been subsidies of medical insurance premiums through the Obamacare Act and they were set to expire. That was extended through 2025. And then the last one and probably the biggest impact is the energy and climate change aspect of this, with investments in climate protection, including lots of tax credits for households to offset their energy costs, investments in clean energy production, and lots of Acts geared towards that.
Jarrod Bridgeman:
You know what I know wasn't on that with that?
Steve Levy:
What's that?
Jarrod Bridgeman:
Is because I've been lately looking at an electric bicycle.
Steve Levy:
I see.
Jarrod Bridgeman:
And there's talks a couple years ago about having a federal tax credit for electric bicycle purchases. But I know that was not included this time around.
Steve Levy:
It wasn't.
Jarrod Bridgeman:
I've been doing lots of research on bikes lately.
Steve Levy:
And I hear that's more and more popular, those electric bikes. So I can understand it.
Jarrod Bridgeman:
I've been considering it. I live two miles from the office. And so that might be on a nice day, hop on a bike and only pedal half the time.
Steve Levy:
And you can really get those things moving like miles per hour.
Jarrod Bridgeman:
Like 25 miles an hour.
Steve Levy:
That's really moving down there.
Jarrod Bridgeman:
Then the next step up will be motorcycle. But for now let's do with the bicycle.
Steve Levy:
Yeah. I hear they're super fun.
Jarrod Bridgeman:
So let me ask you as, not as myself, but let's pretend I'm a dentist for once. And why should I care? Why would a practice owning S corp dentist care about this Act?
Steve Levy:
Well, sometimes laws like this are more important for what isn't in it than what is. And as mentioned, there's no increase in taxes for individuals, including no increase in the tax on capital gains. That's one thing they've been bantering around. And eventually, they've said, "Hey, we're just going to shift the increase in taxes to corporations, billion or more. So obviously that could affect anyone. They could pass that cost onto consumers. But for now, it's stuck with corporations. The additional investment in the IRS, it could mean more audits across the board, although they don't really say and they wouldn't say what type of audits they're going to be and who's going to be audited, more enforcement is likely in some capacity.
Jarrod Bridgeman:
But a positive could be if you needed to get in touch with them, you're more likely to be able to get ahold of a real person.
Steve Levy:
Finally. As opposed to, "I'm sorry, we are not staffed well. So we're not going to be able to answer your call." I mean, that's what's been the situation lately. Not being able to answer calls from people at all, putting them off. Another thing is if a business is planning to install renewable energy property, such as like geothermal or solar projects on their businesses, which we've seen in your office, then those credits have been extended for over 10 years. And it could be worth up to 30% of the cost of the energy property. So that's a substantial extension if you're thinking about an energy-oriented purchase.
Jarrod Bridgeman:
Especially with the solar stuff because I know in some areas these sell back your extra energy that you create to the power plants. So that's helpful.
Steve Levy:
There's lots of things for the home too, that have been extended. It used to be that you would do your home energy upgrades, and when you hit $500 lifetime, that was it. And that was crazy because people are wanting to do more with their home in terms of windows, doors, lots of energy things. And to have it $500 as the lifetime limit and plus tracking, "Okay, what did I buy back in 2005 or something?" So they wised up and finally said, "Okay, we're not going to do that lifetime limit of 500. We're going to do an annual $1,200 limit overall." So that can be substantial for any homeowner.
Jarrod Bridgeman:
As you said, things like windows, like getting those nice double pane and all that kind of stuff.
Steve Levy:
Absolutely. And each of those categories still have their kind of sub-limits. But the overall spending for the year is 1200 and it's not a lifetime thing. And it could lead up to what used to be a 10% credit could be up to a 30% credit now. So they're really trying to encourage that energy-saving spending. And also for the home in the area of geothermal and solar, which is getting more and more popular, that credit extended through 2034. So they're really extending these, even beyond whoever is in power or whatever, really extending them out quite a bit. And then the last thing is on like clean vehicle credits, which exist now. And the problem was there was a manufacturer's limit. So depending on how many like Teslas or whatever were being bought, if you bought it fast enough, then no one else later in the year was allowed to buy that stuff. And that didn't seem reasonable if you want to encourage people to get these things because people might be thinking about December in terms of the time to buy that stuff. So those manufacturer limitations are gone. If you want to buy a whatever vehicle that is like a plugin, mainly electric, also hybrids as well, then you're going to get to and you're going to be able to get that credit, which can be pretty substantial as well.
Jarrod Bridgeman:
That's pretty great, especially as lot of people tend to buy towards the end of the year as opposed to the beginning of the year.
Steve Levy:
Right, because they see, "Okay, maybe I've gotten gifts or this is how much money I've allocated." And a really juicy Christmas.
Jarrod Bridgeman:
Do you celebrate Toyotathon?
Steve Levy:
At times. Yes.
Jarrod Bridgeman:
At times. Well, Steve, I really appreciate you coming in and talking me through this. I had some questions on it. Obviously based off the name I assumed it was inflation only. It appears to be the opposite of that. But as you said, some of these things may over the course of time help.
Steve Levy:
It certainly may and deficit reduction projected is from this. So that's not a terrible thing.
Jarrod Bridgeman:
All right, just a heads up, everybody, please visit our website at fourquadrantsadvisory.com and go to slash events to see what events we're coming up to next. We're going to be in Schaumburg, Illinois at Topgolf on September 30th. And then on October 7th, we will be in Columbus, Ohio for Topgolf as well. So please come visit us and sign up for your seat to come learn how to lower your overhead. Thanks, Steve.
Steve Levy:
Thanks, Jarrod.
Announcer:
That's all the time we have today. Thank you to our guests for their insight and for sharing some really great information. And thank you to you, the listener, for tuning in. The Millionaire Dentist podcast is brought to you by Four Quadrants Advisory. To see if they might be a good fit for you and your practice, go on over to fourquadrantsadvisory.com and see why year after year they retain over 95% of their clients. Thank you, again, for joining us and we'll see you next time.
