Note: This video was recorded prior to the House vote and President Biden signing the Inflation Reduction Act of 2022 into law.
In this episode of The Bottom Line Pharmacy Podcast, join the Sykes & Company, P.A. team as they discuss the implications of the Inflation Reduction Act.
How does this affect independent pharmacies?
Pharmacy CPAs and advisors Bonnie Bond, CPA, Kendell Harris, CPA and Scotty Sykes, CPA, CFP® touch upon the corporate minimum tax, Medicare Part D implications, clean energy incentives and doubling of the R&D tax credit.
The Bottom Line Pharmacy Podcast is your regular dose of pharmacy CPA advice to fuel your bottom line, featuring pharmacists, key vendors and other innovators. Stay tuned for future podcasts airing soon wherever you subscribe to podcasts. www.sykes-cpa.com/ask-sykes
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If you prefer to read this content, the video transcript is below.
Scotty: Welcome to the Sykes Bottom Line Pharmacy Podcast. Your regular dose of pharmacy CPA advice to fuel your bottom line, featuring pharmacists, key vendors and other innovators.
All right, guys. Well, this week we had some big news come out of Washington, which was unexpected. I can tell you from our standpoint, CPAs tracking Washington, this one really came out of left field, surprised a lot of folks. The Inflation Reduction Act of 2022.
I must say, because through the COVID crisis, the bills that were being passed and the changes were just overwhelming. And thank goodness we specialize here with pharmacies because we could take those bills and look at it: How does this impact pharmacy? If you are out there, servicing all kinds of industries, you know, I cannot imagine how folks did that.
But we are here with a new bill and it looks like it is going to get through. President Biden will sign that, most likely. It does have some healthcare components to it, which the NCPA has pushed out some of their content on what they are learning and going through there. So, that should be interesting to see how that all unfolds for sure. Because there is quite a bit in there, Kendell.
Kendell: The NCPA, they have a great article – it came out August 7th. “Senate Democrats pass climate tax and healthcare bill” where there are implications for pharmacy. So, definitely I would check that out. I did notice that there are still some changes because they include this $35 cap in there, but my understanding is that that cap did not make it through. So, it is ever evolving, but that is a good article to check out.
Scotty: Mm-hm, certainly is. But on the other side, outside of the healthcare, there are a lot of tax changes or updates in here as well. So, I just want to run through a few of those here on today’s call. And, Bonnie, we will start with the 15% corporate minimum tax on financial statement or book income. Now this does not apply to us. This is not going to apply to your pharmacies, but this does create a whole host of concerns here for CPAs and the AICPA and reporting reasons.
Kendell: Just so everybody knows, why would it not apply to pharmacies, do you think? Just to make sure we address that.
Bonnie: Yes, I believe it is a billion dollars is kind of the cap on who this applies to. Now that being said, who is to say this does not completely change to $1 million dollars one day? Right?
Scotty: They expand and then the whole game could change. Because now you are mixing the accounting side, that is usually independent of all congressional tax items. So, now you are mixing these two. So, in my opinion, this is not a good thing. Tax policy, accounting policy and procedures and things like that should not be mixed. So, that is a concern.
Kendell: So, generally from a tax perspective your tax income and your financial statement income can be two completely different things. Like for example, one thing that has kind of swept a lot of our clients – a lot of people in the pharmacy industry – is their accrual to cash adjustments.
People get a little confused about what that is and that is basically… you are able to have the accrual for your financial statements and then your cash basis for tax. So, this is saying that regardless of any tax adjustments or tax savings-type things you do for tax, you could still be taxed based on the financial statement income.
Scotty: Yeah, it is a mess because now you are going to have accounting policy that is going to be interconnected with congressional debate and policies and, you know, these things need to be independent. So, it is going to be interesting to see how that unfolds.
Also, we have the 1% excise tax on corporate stock repurchases; nothing obviously for pharmacies there. They did keep in the carried interest rules, which is raising the revenue for this bill, which pretty much lengthens the long-term capital gain treatment for these hedge fund-type entities.
What else do we have in here, guys? I will tell you a big one. Now, this one is going to impact pharmacies. So, this needs to get the attention of pharmacies here. There is $45.6 billion of additional funding for IRS enforcement. The plan being, they are going to hire 87,000 auditors.
Now, this is going to open up a flood of audits and costs for taxpayers to defend those audits. And so, intrusion, if you want to call it that, you know, it is just really going to pick up. Now, when we look at the $45.6 billion of enforcement for the IRS funding, only $3 billion for taxpayer services. And if you are a pharmacy out there right now… everybody knows the IRS is completely upside down in terms of taxpayer service.
So, if you have a notice – and there were a lot of erroneous notices sent out – regarding payments with the IRS. They sent notices and they are not actually accurate. And then you try to get on the phone with somebody; only 10% of the time can you actually get through to a human being.
Kendell: Scotty, I have to pick your brain a little bit more. So, you said it, but I want you to clarify. You said the auditing, opening up audits, is going to be a big expense. How is an audit – when you get audited – how does that create a big expense?
Scotty: Yeah, you know, you are going to have to hire your CPA. All these taxpayers out there are going to have to hire their CPA to defend them in their audit and prove their innocence and prove what they have reported, and all that good stuff. So that can cost.
You still have to go through this whole process. Not to mention, if a mistake happened to be made or there was an error somewhere, the penalties and interest that you would have to potentially make up there.
Sometimes there are some fraudulent items out there; that is important as well. Very important. But taxpayer service, come on. I mean, even the Congress knows all about taxpayer service issues. I was hoping to see more on the taxpayer service side.
There is a lot in here. I guess a few notables for pharmacies would be the clean energy and efficiency incentives for individuals. So, the energy property, it credits energy-efficient home credits.
So, there will be a lot to unpack here. A lot of the credits already out there are being expanded as well. And in addition to the clean vehicle credits as well, you will be able to get a credit for an electric vehicle even if it was previously owned, which is new.
I also want to mention, if you are a compounder out there getting into compounding, that R&D tax credit could be something for new compounders or any compounders really.
For new ones, you can use the credit against payroll tax. They have expanded in this area. So, new compounders out there definitely pay attention to that. That could be an area that is important to you, for sure.
Kendell: And I think some of those items that are listed from the healthcare perspective that are included in the budget, obviously we are more tax and accounting but long term, they could have some impacts on what we are seeing with drugs. But I think that is left to be seen. There was a mention that there is going to be some negotiating prices that is going to be able to be done for Medicare Part D, that starts in 2026. So…
Caps on out-of-pocket expenses for those Medicare Part D beneficiaries who are seniors at $2,000 per year, starting in 2025. I guess you could wonder if, “Hey, are they going to increase the drug costs in other places that they are losing in one area.” We will wait and see how that impacts us, but it is going to be interesting to see in the next decade or so how these changes actually impact the pharmacies at the independent level, because all of these things are scripts that are being filled at our independent local neighborhood pharmacies.
Scotty: There is going to be some knocking on the doors, it looks like, for a lot of folks here. And of course, the energy credits. I am sure we will record some podcast episodes breaking down those energy credits as we learn more about those, and see how those are going to impact pharmacies in particular.