The Build Back Better Bill, also known as the Build Back Better Act, is structured to support the middle class and expand the economy. It states that taxes for those with an income under $400,000 will not change. But the funding for this trillion-dollar act needs to come from somewhere.
Let’s dive into how the Build Back Better Bill will affect business owners in 2022.
What is The Build Back Better Bill?
The current Biden Administration released a legislative bill called the Build Back Better Bill, which has already passed by the House of Representatives, that aims to grow the economy by creating jobs and meeting climate goals. Here is what the new bill will include if passed by the Senate:
- Grant more families access to the Child Tax Credit
- Increase access for older Americans and those with disabilities for home care
- Create universal free preschool for children ages 3-4 years old in the U.S.
- Cut greenhouse gas emissions and reduce energy costs
- Decrease healthcare premiums
- Provide more uninsured people health coverage
- Expand access for affordable housing
- Increase access to high-quality education beyond high school
- Improved immigration system
Currently, the Act passed the House of Representatives with revisions. It now waits for approval by the Senate. If approved by both branches, business owners may feel the impact in 2022.
How does the Build Back Better Bill Affect Business Owners in 2022?
According to the White House, the Bill is paid by finding funding through the following, “Combined with savings from repealing the Trump Administration’s rebate rule, the plan is fully paid for by asking more from the very largest corporations and the wealthiest Americans.”
The Act will be funded largely by taxing large corporations and those in higher tax brackets. Time explains the revenue to cover costs will be sourced from, “a new 15% tax on large corporations with over $1 billion profits, as well as a 1% surcharge on companies that perform stock buybacks… The spending bill will also be funded through a new tax surcharge on the wealthiest Americans, applying a 5% rate on income above $10 million and an additional 3% surtax on income above $25 million”
Increasing taxes on large corporations and the wealthiest Americans does not cover the full proposed spending budget for the bill. 2022 will most likely see an increase in IRS audit rates if the bill passes to cover the remaining costs of the Build Back Better Act.
Businesses should prepare for a possible audit by keeping organized records and making sure workers are classified correctly ahead of time.
The Build Back Better Bill will refund the Internal Revenue Service. In 2007 IRS underwent major reductions in staff and funding and, as a result, the number of audits of small to mid-sized businesses went down (however incrementally). Now, with the new Act, the IRS will have the resources to collect millions of dollars of back taxes and, in doing so, fund the social programs included in the Bill.
This means the agency will start looking more heavily at the small to mid-sized businesses for late or unfiled tax filings, misclassified workers, and more. The fines and penalties associated with audit findings are lofty for business owners as IRS audit findings fund the new proposed Act. In a statement by the California Department of Labor, the government agency found Dynamex case misclassifications alone cost the state $7 billion each year.
Recent IRS proposed changes include their ability to look into individuals’ personal checking accounts for any person receiving more than $600 into an account. It seeks to uncover tax evasion for those reporting less income than actually received.
IRS Audit Triggers
With increased IRS audit rates on the horizon for 2022, be aware of these 10 red flags that can trigger an IRS audit:
- Having a higher than average income
- Taking out disproportionately large deductions
- Filing a Schedule C
- Constantly claiming business loans
- Filing taxes late
- Deducting business expenses, travel, and entertainment
- Averaging or rounding up income
- Claiming vehicle as 100% business expense
- Employing a large number of independent contractors compared to employees
- Participating in large cash transactions
Some of these red flags are unavoidable for businesses. However, business owners in the new year should stay organized and keep excellent records in the face of a potential IRS audit. Read more about common IRS audit triggers here.