Robert W Morris & Company PC

87,000 new IRS agents and increased funding for the IRS isn't all bad. Hopefully, you'll get your letters answered timely and they will pick up the phone when you call. However, if you operate a business, my advice to you is, get your house in order.

The IRS commissioner recently said, "Wage-earning taxpayers like firefighters, construction workers, teachers and police officers are among the most compliant taxpayers, given that their incomes come from Forms W-2 and 1099," the implication is that they have nothing to worry about.

I think you'll agree that these taxpayers shouldn't have anything to worry about, but they are not businesses. The fact of the matter is that you don’t need that many new IRS agents to go after a few people they say are very, very rich. Farmers and small businesses are going to bear the burden of this legislation.

Experts say, that cracking down on higher-income taxpayers comes with diminishing returns — even if the amount of money involved is potentially far larger. Rich people who file complex returns have access to accountants and lawyers who can fight the IRS’s enforcement mechanisms, or at least draw the process out over years.

Even when the IRS is able to collect from those types of taxpayers, it will have expended lots of resources in the process.

Most small businesses don't have these resources and they typically end up with a negative outcome in an IRS examination. Currently, the IRS gains $10 for every $1 they spend on audits. This figure should increase with the higher level of training and improvement to their tech stack.

The Inflation Reduction Act allocates $80 billion to the Internal Revenue Service, with just more than half of the funding going to increased tax enforcement.

It’s not a given that you will be picked for an audit. But if you are, the best way to survive an IRS audit is have qualified professional help and to prepare for one in advance. Know your numbers by utilizing a quality accounting or bookkeeping system. As part of this system, you should systematically maintain a documentation — invoices, bills, canceled checks, receipts, or other proof — for all items to be reported on your tax returns. It also helps to know what might catch the attention of the IRS. Here are a few examples:

• Significant inconsistencies between tax returns filed in the past and your most current tax return,

• Gross profit margin or expenses markedly different from those of other businesses in your industry, and

• Miscalculated or unusually high deductions.

As with all worrisome or complex issues, we are here to help! You can learn more about how we can help you focus on what’s important; running your business, growing your profits, and sleeping better at night knowing your records are organized and substantiated here: https://www.robertmorriscpa.com/what-we-do/boss.