By October 3, 2022
Preparing for the Inflation Reduction Act
What’s worse than dealing with taxes? Dealing with the IRS. Paying your taxes isn’t fun, but when the IRS interacts with your business more directly life gets even more complicated. Unfortunately, the IRS is about to get more involved in dealing with small businesses.
The Inflation Reduction Act will have an effect on business owners like you very soon. Whether that effect decreases or increases inflation has yet to be seen, even though I suspect it will end up increasing inflation. That doesn’t mean we are clueless about what will happen. Here is what we do know.
The Inflation Reduction Act (IRA) included funds to hire new agents to help the IRS push collections. The number of new agents to be added is about 87,000 according to the news media. However, we don’t know for certain if that will translate into 87,000 agents or if the true number of new agents will be smaller.
There is potential for new lawyers and administrators to be added through this funding in addition to new agents. Either way, we know that they are trying to add new agents to their ranks. If they add the full number of new agents that the news reports, they will double the size of the IRS very quickly.
More agents means a greater opportunity for the government to look at tax returns. One serious possibility is that smaller errors that would have been ignored in past years will now get flagged for audits. With more people to scrutinize tax returns, the government is aiming to get as much money in taxes as they can.
These audits will most likely be focused on sole proprietors, small corporations, and companies usings 1099 contractors. Small business owners are far more likely to make mistakes in their bookkeeping and they tend to have little or no legal representation. So this is an area of clear concern.
The danger that the IRS magnifies already exists. Misclassified employees can end up costing a company a lot of money. Failure to pay taxes or errors on taxes are likely to get you in hot water and make your life miserable. And the inflation reduction act makes the likelihood of getting caught far higher than it has ever been.
Additionally, the increased pressure of an audit is enough to keep you off balance and the IRS is not known for being fun to work with.
If you don’t want to be caught off-guard, you need to prepare yourself now. To do that you can:
- Plan your taxes for next year with your CPA
- Ask your CPA to review your tax documentation
- Find legal representation through a company like Legal Shield
- Hire a bookkeeper to review your books and ensure they stay organized
Remember that your business’ continued existence may hinge on getting your taxes right over the next few years. DON’T take unnecessary risks.