Owning and running a small business is always fraught with risks and rewards. In March 2020, when the country came to halt due to the COVID-19 pandemic, small businesses were left gasping for air. With each new executive order, CDC guidance, or local health regulation issued, the federal government attempted to pass measures to help support small businesses. The CARES Act produced Paycheck Protection Program (PPP), then came round 2 of the PPP. This is in addition to all the stimulus dollars sent directly to taxpayers at the height of the pandemic.
The Employee Retention Tax Credit (ERTC) added another layer of measures designed to help businesses stay afloat. Then in 2021, the ERTC was altered in an attempt to reach more taxpayers. But did you know that there was a provision under the ERTC that allowed the IRS an additional 2 years past their normal statute of limitations to examine claims made under the ERTC?
With how quickly Congress was passing out funds during the pandemic, it shouldn’t be a surprise that now the government will attempt to have an accounting for those funds and ensure they were given to eligible taxpayers. Funds were being distributed quickly, but the guidance oftentimes was vague and purposefully left open to interpretation.
The likelihood of the passage of the Inflation Reduction Act could be a day of reckoning. A key provision in the act is set to throw an additional $80 billion to the IRS to improve its collection efforts. According to the nonpartisan watchdog, the Joint Committee on Taxation, it is expected the IRS will end up targeting small business owners to pay for the legislation.
The group estimates that between 78% and 90% of the estimated additional $200 billion the IRS will collect will come from small businesses making less than $200,000 annually. And just about 9% would come from businesses making more than $500,000 a year.
Per the New York Post: “The IRS will have to target small and medium businesses because they won’t fight back,” Joe Hinchman, executive vice president at National Taxpayers Union Foundation. Here at CRS, we’ve seen this play out over the past few years based on the increase in correspondence letters and audits our small business clients continue to be subjected to.
So what can small businesses do to prepare? Our recommendation is, don’t go it alone. Be sure you are working with someone that provides you with timely advice and insights. Simply filling out a tax form after year-end is too late to take advantage of minimizing taxes and conversely too late to avoid hitting potholes that can raise your risks of IRS examination. That is why we are intentional in our communication with our clients throughout the year and encourage you to call us anytime.
Running a small business can be perilous enough; be sure you’ve got the right team backing you.