Berkshire Hathaway could be one company that is hit big with the new minimum tax for large corporations.
Berkshire Hathaway is known for buying and keeping stocks for numerous years, having stocks like Coca-Cola and American Express for over three decades.
One reason for doing this is minimizing taxes. Until now, taxes are only paid when stocks are sold at a gain. The company had about $245 billion in its stock portfolio at the end of last year. Most of the stocks were in Apple, Coca-Cola, Bank of America, and American Express, according to CEO Warren Buffett’s annual shareholder letter.
Why it’s news
Now with the new 15% minimum tax, the company might have to start paying on its gains.
The new corporate tax that is part of the Inflation Reduction Act will instate a minimum tax of 15% on the adjusted financial statement of big corporations. The business will pay the larger of the minimum tax or the regular tax, according to Congress Reports.
The tax will apply to companies that make more than $1 billion in average annual earnings, calculated over a three-year period, in any of the previous three years.
So, some years Berkshire Hathaway could possibly not have to pay taxes on its stock gains because its regular tax might be bigger.
In an analysis published in Tax Notes International in November 2021, Martin Sullivan, a tax expert and chief economist at Tax Notes, estimated that Berkshire would have owed one of the largest amounts of taxes among mega cap companies based on a 15% minimum corporate tax for the period from 2018 through 2020. Its annual tax bill would have risen by an average of $3.2 billion over the period, reports Barron’s.
Backing up a bit
Last week, President Joe Biden signed a climate and health-care law called the Inflation Reduction Act.
The primary goal of the law is to restrain inflation by reducing the deficit, lowering prescription drug prices, and investing into clean energy. The bill invests $369 billion in climate change investments, $64 billion in extending the Affordable Care Act, institutes a 15% corporate minimum tax, and expands IRS tax enforcement.