This coming tax season, there have been changes in IRS enforcement and audits. In recent years, the IRS has ramped up its efforts to increase enforcement and improve tax compliance, largely due to a substantial increase in funding allocated for enforcement initiatives. This funding is part of the Inflation Reduction Act (IRA), which aims to bridge the “tax gap”, the difference between taxes owed and taxes actually collected. As a result, the IRS has been able to expand its auditing capacity, invest in advanced technology, and hire additional agents, all to better target underreported income and ensure tax compliance.
One of the primary objectives of the IRS’s expanded enforcement strategy is to focus on high-income taxpayers, complex corporate structures, and under-reported offshore accounts. However, this increased scrutiny also has implications for small business owners and self-employed individuals who may inadvertently fall into audit categories due to the complex nature of their tax situations. With the IRS’s heightened capability to analyze financial data, even individuals with moderate incomes may find themselves subject to review if their tax returns contain significant discrepancies or unusual deductions.
Taxpayers can take steps to mitigate the risk of audits by maintaining detailed records, reporting income accurately, and claiming only eligible deductions. For small businesses and self-employed individuals, working with a tax professional can help ensure compliance with the evolving IRS guidelines and reduce the likelihood of an audit. Being proactive, organized, and informed can go a long way toward managing tax obligations and staying on good terms with the IRS as it continues to intensify its enforcement efforts.
With these changes, transparency and accuracy in tax reporting have never been more important. As the IRS begins to leverage advanced data analytics and artificial intelligence to identify red flags, taxpayers should focus on timely and accurate reporting to minimize any potential issues.
