Recently, the IRS said that small businesses are responsible for 84
percent of the $450 billion tax gap and the IRS believes that’s due in
part to underreporting. In an effort to increase compliance, the IRS
will focus on eight specific areas that could red flag a small business
for an audit. If you own a small business that may be subject to any of
the following issues, be proactive and address these areas now to
prevent future problems.
- Fringe benefits.
The IRS has found that employers are not reporting personal use of
company vehicles on Forms 1099 or W-2 and plan to investigate the use of
all company cars – especially luxury autos – in its audits.
- Total positive income.
The IRS will focus on those small businesses who have a total positive
income of more than $1 million (this includes all gross receipts and all
sources of income before expenses and deductions) and file a Schedule C
business return. Last year, 12.5 percent of all individuals with
incomes of more than $1 million were audited.
- Form 1099-K matching.
The IRS has indicated it plans to pilot a business-matching program,
starting with Form 1099-K, which they believe will address a large
portion of small business noncompliance.
- Small business employee health insurance credit.
Eligibility requirements for small business employers and tax exempts
for the small business employee health insurance credit under Section
45R will face scrutiny this year. The IRS will examine small business
employers and tax exempts to make sure they meet all eligibility
- International transactions.
The IRS will be looking to aggressively pursue taxpayers who hide
assets overseas and focus on offshore transactions for both large and
small businesses. This focus in an attempt to lessen the international
- Partnerships with unreported income. The IRS plans to target partnership who claim a loss, have unreported income, or present abusive transactions.
- Compensation for S-Corporation officers.
S-Corporations who report a loss in excess of basis on shareholder
returns will be reviewed by the IRS to determine whether tax preparers
and completing due diligence requirements. They will focus on
S-Corporations with income, distributions, and little or no salary paid
- Worker classification. The
IRS believes a lot of small businesses report workers as independent
contractors rather than employees and feels there is significant
noncompliance in worker classification. This, obviously, creates
employment tax issues and the IRS plans to continue to focus their field
examination resources in this area.
Kenneth Hoffman counsels Entrepreneurs, Professionals and Select Individuals in taking control of their taxes, and businesses. Discover how I can help you overcome your tax and business challenges. To start the conversation or to become a client, call Kenneth Hoffman at (954) 591-8290 Monday - Friday between 8:30 a.m. to 1:00 p.m. for a no cost consultation, or drop me a note.