What Does The Inflation Reduction Act Mean For Your Taxes & Business?
The Federal Inflation Reduction Act was signed into law this August, granting an additional $80 billion in funding for the IRS. A big chunk of that money is going towards hiring 87,000 additional individuals at the IRS.
The thought of more IRS auditors may be scary, but there are also some benefits to this law for taxpayers.
What is the IRS doing with the $80 billion in funding?
In short, this money will rebuild and “modernize” the IRS. Part of this will be to hire new auditors, but those are not the only positions that the IRS will look to fill. IT technicians and taxpayer services support staff will make up a good portion of these new hires. The other element to consider is the IRS will going through some substantial attrition over the next 5 years as roughly 50,000 of its employees will be eligible to retire.
Did you know:
In the first half of 2021, there were less than 15,000 IRS employees that were responsible for answering roughly 200 million calls from taxpayers? That’s 1 IRS employee for every 13,000 calls. With more IRS taxpayer support staff, your questions are far more likely to be answered in a timely manner.
In addition to new staff, the IRS is in desperate need of a technology overhaul. Much of the IT system that the IRS uses today was built in the 1960s! That means when something breaks they have to make custom parts for these ancient machines.
Why does the government expect this investment to generate $200 billion in revenue?
The goal of this bill is to reduce the tax gap, i.e. the difference between what an individual or business truly owes in taxes and what they actually pay.
This does not necessarily mean a huge increase in audits across the board. In fact, the Treasury Department has stated that no American earning less than $400,000 per year will have a greater chance of an audit due to this new law. Instead, they intend to aggressively target businesses and individuals who cheat on their taxes.
However, that income line is blurry and you’ll likely end up getting more letters and inquiries from the IRS.
There are specific sections of the population that will be more likely to be audited with this new funding:
Individuals with a lot of capital gain transactions
Individuals where income is not necessarily reported by 3rd parties (look out crypto investors!)
Businesses & Self-employed individuals
What should you do if you’re concerned?
The easiest thing to do is stay organized: retain copies of all government tax documents, use good crypto software to calculate gains/losses, and above all get your bookkeeping in order!
If you need a team on your side, get in touch with us. We’ll take care of your taxes, work with you on reducing your tax bill, and provide audit support to keep you protected.
