Inside the Inflation Reduction Act is $80 billion in new funding for the IRS over the next 10 years. More than half of that new funding is slated for increased enforcement, including 87,000 new agents.
The president and IRS Commissioner say they won’t go after anyone making less than $400,000 a year with the increased enforcement. But, in reality, they won’t go after any wage earners making less than $400,000 on a W-2.
Yet, small business owners don’t appear to be included in this limitation. Thus, many law-abiding small business owners and high-net-worth individuals will find themselves the target of increased scrutiny, enforcement and costly audits.
If Congress were accurate, this bill would be called the Small Business Disruption Act, writes Tom Wheelwright, CPA, CEO of WealthAbility, and the bestselling author of Tax-Free Wealth: How to Build Massive Wealth By Permanently Reducing Your Taxes.
Bottomline, high net worth individuals, growth-minded entrepreneurs, small business owners and strategic investors need a plan for the IRS pending increased enforcement.
Here are three ways, according to Wheelwright, to protect yourself from the upcoming onslaught of audits.
1. Get a CPA Who Isn’t Afraid of the IRS
The question isn’t will you get audited by the IRS; it’s when. The IRS has been getting more aggressive in how it approaches certain types of taxpayers for years. Rather than make an effort to root out actual tax cheats, the IRS has been challenging legitimate tax incentives.
You’ll need a CPA who isn’t afraid to stand up to them. As the client, you should never speak with the IRS. That’s what your CPA is for. If your tax advisor seems uncomfortable with this idea, that’s a clear sign that it’s time to make a change.
2. Make Sure Your CPA Is Preparing Your Tax Return in Ways That Minimize Your Chance of an Audit
While you may not be able to avoid an audit forever, there’s no reason to position yourself at the front of the pack. There are choices that your tax preparer makes in creating your return that will either raise or lower potential flags to the IRS. All of these choices are legal options, but the terminology and methodology make a difference.
Ask your CPA for specific examples of how they are reducing your risk of an IRS audit. You want someone who can give you a clear plan and who demonstrates a level of confidence that reassures you they can deliver.
This shouldn’t mean missing out on tax deductions to which you are entitled. Missing out on tax incentives and deductions is like making a voluntary donation to Washington, D.C. No solid tax strategy makes this tradeoff.
3. Invest in Education and Advice
The government offers many compelling tax incentives to encourage investment. One of the keys to tapping into these incentives is ensuring you have the information and guidance you need to maximize your results. Take the time to learn how these programs work and, when needed, bring in an expert.
It’s not enough to have the right technology and equipment at the right price. You need to make sure you’re also structuring and documenting your purchase to maximize the available tax incentives.
With the IRS bearing down on small business owners, now is the time to surround yourself with high-powered tax professionals who will protect your interests.
References:
- Tom Wheelwright, What The Inflation Reduction Act Could Mean For You, Worth, August 22, 2022. https://www.worth.com/inflation-reduction-act-irs-80-billion-funding-increase-audits/