Tuesday, January 4, 2022

TRANSLATING DOUBLESPEAK: Biden's 'Tax Plan' Sabotages Small Businesses While Leaving Large Corporations to Do as They Please

Source: CNBC

Published: May 5, 2021

By: Kate Dore

  • President Joe Biden wants to boost IRS funding by $80 billion over the next decade to fight tax evasion from wealthy Americans and corporations.
  • The measure would beef up IRS staffing and improve technology, bringing in an estimated $700 billion in revenue over 10 years.
  • There may be an uptick in small business tax audits and financial experts offer tips to avoid trouble.

President Joe Biden is asking for $80 billion to help the IRS crack down on tax avoidance from wealthy Americans and big corporations. 

The proposal seeks a boost in enforcement staffing, technology and additional bank reporting, measures that may generate an estimated $700 billion in tax revenue over the next decade.  

However, some financial experts say the plan may spark more audits for certain small businesses.


IRS funding

Biden’s proposal comes as the IRS struggles with the volume and complexity of returns.

The agency lost more than 33,378 employees between 2010 and 2020, including those auditing returns and collecting unpaid taxes.

These cuts have resulted in fewer audits for high-earning filers. The IRS audited fewer than 2 out of every 100 taxpayers earning more than $1 million in 2020, a Syracuse University report found.

While the number of millionaires have nearly doubled since 2012, tax audits have dropped by 72%, to 11,331 in 2020, from 40,965 in 2012.

IRS extends federal tax filing deadline but states may differ
The funding dip has impacted more than just the wealthy, however.

A recent National Taxpayer Advocate report found the IRS answers only 24% of calls, making it difficult for those grappling with the slew of tax changes amid the pandemic.

Advocates say Biden’s proposal may help pay for his $1.8 trillion American Families Plan, while opponents argue it may place burdens on small businesses without guaranteeing the promised tax revenue.

“A robust and sustained investment in the IRS is necessary to ensure it can do its job of administering a fair and effective tax system,” said IRS Commissioner Chuck Rettig in an email. 

 He said the agency needs more resources for investigations into underreported income and to pursue high-income taxpayers who evade tax liability through “complex schemes.” 

They also need improved technology for complex tax returns and tracking income.

“And, it requires access to better information so that the agency can target its efforts at the most egregious offenders while helping compliant taxpayers avoid unnecessary and costly audits,” he said.

The budget increase will also make it easier for the IRS to provide taxpayers with timely answers to questions, he said.

Impacted small businesses

The plan may result in more audits for some small businesses, particularly high earners, according to financial experts. 

“If you’re an individual making over $400,000 a year, you should feel like you have a target on your back,” said Paul Axberg, a certified financial planner and CPA at Axberg Wealth Management in Sun City West, Arizona.

Cash-only businesses

Certain small businesses may face an audit under the plan.

“I think the industries that should be concerned are those in cash,” said Luis Strohmeier, a Miami-based CFP and partner at Octavia Wealth Advisors.

He expects the agency to scrutinize cash-only small businesses like restaurants, retail, salons and other service-based companies.

“I think going after mom and pops, where the agent goes to see them, and they have all their receipts in a shoebox, just might yield something,” said Strohmeier.

He said those with looser record-keeping should take the opportunity to clean up their books.

Make sure you get your books audited by your accounting firm and that everything matches up, just in case somebody knocks on your door.

Getting the call for an audit may be nerve-racking for small businesses. But those following the rules shouldn’t be afraid of run-ins with Uncle Sam, financial experts say.  

“It’s always about having good record-keeping,” Axberg said.

He said it’s critical to save receipts for all expenses and keep books up-to-date. It will be easier for a CPA to back up your position with pristine records in the event of an audit.

While the less costly do-it-yourself approach may be tempting, Strohmeier urges against it. 

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“Make sure you get your books audited by your accounting firm and that everything matches up, just in case somebody knocks on your door,” he said.

Read more at: CNBC.com
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