Recent IRS analysis indicates that under-reporting by small businesses is responsible for 84% of an estimated $450 tax gap between the tax revenue that is owed and the amount that has been collected.
Eight specific areas that are abused the most are:
- Company cars- An IRS study on employment tax compliance revealed that employers frequently don’t report the taxable benefit that employees receive from their personal use of company-owned cars. In its next series of audits, the IRS plans to focus on the use of company cars that are “luxury” models.
- High Income Taxpayers- The IRS defines a high-income taxpayer as someone who brings in a certain amount of “total positive income” for the year. The tax agency will aggressively pursue self-employed taxpayers with a TPI of more than $1 million.
- Form 1099-K Matching- The IRS will institute Form 1099-K matching next year; it will be launching a new pilot program that will match up payee statements with receipts.
- Health Insurance Credits- Under the Patient Protection and Affordable Care Act (PPACA), a qualified small business may be eligible for a credit for the health insurance it pays for employees. Employers and nonprofits will be examined by the IRS to determine the eligibility under the PPACA credit.
- Foreign Transactions- The IRS has been trying to uncover assets that are being secretly stowed away by U.S. taxpayers in overseas accounts. It will continue to focus on offshore transactions made by individuals and businesses.
- Partnerships- The IRS aims to target partnerships that have reported large losses or have suspicious transactions on the books.
- S Corporations-S corporations are increasingly being targeted for in-depth audits. The IRS wants to see if S corp losses in excess of basis are reasonable and if unreasonable compensation is being paid to owners and officers.
- Worker Classifications- There are several incentives for employers to classify workers as independent contractors instead of employees.
Now that you know where IRS audits of small businesses are likely to lead, you may want to take appropriate steps to reduce your exposure in these areas.
To see how we can help you, call to make an appointment with us today at 401-254-0151. We look forward to hearing from you.
