There's been a lot of buzz this week between the Inflation Reduction Act and the White House announcing it will cancel up to $10,000 to $20,000 in student loans per loanee. Here's what you need to know.
Inflation Reduction Act
What is it?
Signed on August 16, the Inflation Reduction Act touches on clean energy, incentivizing manufacturing in the USA, healthcare and prescription drug costs, and taxes.
The White House Fact Sheet can be found here. (1)
Brass Tacks
Ultimately, the main interest for many is the bill’s impact on taxes, so here’s a breakdown of what to expect and how you can prepare.
Half of the new IRS funding is directed to rebuilding its enforcement capabilities. Low audit rates of are the driving force here.
Current audit rates are approximately 0.25%, a historic low when compared to the 1% in 2010 and 1.7% in 1995. Janet Yellen, the Treasury Secretary, stated the new funding will not be used to raise audit rates above the historical norm—presumably 1.7%—for earners of less than $400,000 per year.
Taxpayers who engage in any of the following are more likely to be flagged for an audit and should prepare accordingly:
Own a partnership or S-Corp,
Trade cryptocurrency
Have income from foreign sources
How to prepare:
Keep records of deductible expenses, charitable contributions, and investment cost basis.
Cost basis isn't always kept for cryptocurrency so utilizing a trading platform that maintains these records or utilizing a service to track the trades can be helpful.
Utilize a CPA and consider a tax attorney if you own a growing business.
How do audits work and how should I handle them?
Audits begin with requests for information through paper correspondence.
Depending on the type of audit, the correspondence may be followed by interview calls, video calls, and in-person interviews.
Although there are five types of audits—simple letter, audit letter, office audit, field audit—they should be handled the same way: enlist the help of a tax pro (CPA and/or attorney).
CPAs and attorneys typically handle the audits on your behalf, reducing the day-to-day headache. They may charge for the time spent representing you but this will be well worth the peace of mind.
Student Loan Forgiveness
What is it?
On Wednesday, the Biden Administration announced student loan relief for low-to-medium income earners. The White House Fact Sheet can be found here. (2)
All political mumbling aside, here’s what has been made available.
Up to $10,000 for Federal Student Loans
Up to $20,000 for Pell Grant recipients
Up to $10,000 for Parent PLUS recipients, which is a federal loan take taken out by a parent with an undergraduate child.
Additionally, “borrowers who are employed by non-profits, the military, or federal, state, Tribal, or local government may be eligible to have all of their student loans forgiven through the Public Service Loan Forgiveness (PSLF) program.” Temporary changes made by the administration are making public service forgiveness easier to qualify for until October 31, 2022.
Do I qualify?
Was the loan taken out prior to June 30, 2022?
Are you single—not married—and make less than $125,000 per year?
Are you married and the household together—you and your spouse—make less than $250,000 per year?
If you answered yes to question 1 and answered yes to either question 2 or 3, then you qualify and should follow this link. (3) There you can sign up for notification of enrollment into the relief program or can access the Public Service Loan Forgiveness (PSLF) program.
Links:
(1) https://www.whitehouse.gov/briefing-room/statements-releases/2022/08/19/fact-sheet-the-inflation-reduction-act-supports-workers-and-families/
(2) https://www.whitehouse.gov/briefing-room/statements-releases/2022/08/24/fact-sheet-president-biden-announces-student-loan-relief-for-borrowers-who-need-it-most/
(3) https://studentaid.gov/debt-relief-announcement/
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