Quick Article Summary:
- New IRS budget plan would add 87,000 agents (2x Workforce)
- An increased frequency of audits is anticipated
- Staying organized is now more important than ever
The IRS is hiring 87,000 new agents as part of the Biden Administration’s plan to increase tax revenues. While this may appear to be targeting the rich, history shows that small businesses are often the targets of IRS audits.
As a small business owner, it’s important to be aware of the impact of an IRS audit. With the IRS doubling their agent workforce and looking to dramatically increase audit frequency, it’s important to stay informed. If you’re not careful, you could end up owing the IRS thousands of dollars in back taxes.
The proposed ‘Build Back Better’ Bill would provide the IRS with a whopping lump sum of $79 Billion dollars. This payment alone is 6x the size of the IRS’s annual budget!
The funds are part of a concerted effort aimed at collecting unpaid taxes from large corporations and wealthy individuals. In 2019, the agency reported $519 Billion in unpaid taxes, claiming the majority stems from underreporting of income, and the rest from unfiled taxes.
According to the IRS, the proposed increase in funding and audits would garner an additional $700 Billion in collections over the next decade. This would come in the form of increased audits on large corporations and the wealthy (additional agents), as well as improved technology across the organization.
However, some tax experts see this as an overreach, and insist that 80% of the planned increased revenue that the IRS will generate – will come from small businesses earning under 200K. It is worth noting that history has shown us:
Whenever there is an overall increase in taxation and regulation, those regulations trickle down to main street. While large corporations and wealthy individuals have the resources and legal teams to handle these situations, small business owners are often left to fend for themselves.
In the face of rising inflation and turbulent geo-political happenings – it’s more important than ever to have a concrete strategy in place to manage your books, and run your day-to-day business operations. While facing an IRS audit is not the end of the world (in most circumstances), it is an expensive and time consuming process that will further take time away from your business
There are a few things you can do to avoid an IRS audit, and a couple of options if you are already undergoing one. Here are some tips to keep in mind:
First, make sure you file your taxes on time and accurately . The IRS has a variety of tools at their disposal to check up on businesses, and one of the most common is matching tax forms with information submitted by employers. If there are discrepancies, you will likely be selected for an audit.
Wondering how far back can the IRS Audit? Typically the IRS goes as far back as 3 years. If discrepancies are found, they can look through additional years of filings. Making it even more important to act now and get organized.
Another way to avoid an audit is to make sure your books are in order. The IRS will often request documentation to support your claims, and if you can’t provide it – they may view it as an indication of fraud.
The best way to make sure your books are in order, is to work with a bookkeeping service. For a monthly fee, you’ll have a trusted expert by your side managing all of your businesses finances, saving you time and ensuring every transaction is accounted for.
Generally speaking, these services pay for themselves in increased savings (maximizing your deductions) and the increased time afforded to you will help you in focusing on what matters most, increasing revenue and growing your business.
What if I’m already being audited?
If you are already being audited, there are a few options available to you. One is to request an Offer in Compromise, which allows you to settle your tax debt for less than what you owe. This option is only available in certain circumstances, and you’ll need to prove that you can’t pay the full amount.
Overall, it’s important to stay informed and proactive when it comes to your taxes. With the IRS doubling their workforce and looking to increase audits, now is the time to make sure your business is in compliance.
If you have any questions or concerns, give us a call at 973-478-4846 or visit our website.