IRS to Substantially Increase Tax Audits

The Biden administration wants to increase the number of tax audits by raising the IRS budget to over $80 billion and adding 87,000 new IRS jobs over the next decade. Biden plans to focus on the wealthy because the top 21 percent of the highest one-percent income earners underpay their taxes. The difference between what was owed and paid in 2020 was about $600 billion and, without stronger measures, the amount underpaid could reach $7 trillion by the end of the decade.
The increase in audits will target small businesses, particularly high earners who make above $400,000 a year. However, it is also likely the IRS will target small businesses organized as sole proprietorships, partnerships and LLCs that do not pay corporate income taxes and instead pass through earnings to the owners or its members. In these businesses, it is harder to establish how money flows and what transpires financially within them. Among these include hair salons, retail stores, and restaurants that do some cash business.
Be Prepared Just in Case:
Although the IRS will target mostly wealthy taxpayers, we advise all businesses to keep their tax records in order. You should have easy access to your receipts and keep your expense records up-to-date.
If you have your books audited by your accountant and get everything to match up, the easier it will be for your CPA to back up your position should you be audited. Our recommendation is that you have your accountant do this rather than prepare it yourself. If you are organized when the IRS knocks on your door, they will probably not waste their time with you.
Contact your accountant should you have questions concerning preparation in case of an audit. If you are a client of ours, we will provide you all the tax planning advice you need complimentary.
Professional Tax Services is a locally owned provider serving over 3,500 local residents and businesses. For more information call 661-259-1967 or visit www.protaxservices.com. Through their complimentary EZ2 Thrive program, they provide unlimited free tax planning advice to their clients.