The buzz about the IRA potentially getting billions in new funding and hiring 87,000 new employees is typical of the news spinners who thrive on creating anxiety for the general public. The tax industry has known the IRS’s secret for years now and the few people in the public that pay attention know that these people are desperately needed! Like many restaurants and other businesses that have closed because of staff shortages and uncertainty, the IRS at current staff levels has been almost impossible to reach and is years behind in its work.
They have had tens of thousands of employees retire without being replaced, and just reaching the IRS to speak to someone about an issue can take days and weeks of effort. The new influx of cash will for the most part just get them back to answering phone calls and getting onto a reasonable time table for good public service. According to many in the know, the new audit focuses would largely be in the areas of cryptocurrency taxation, which has been the wild, wild west and an area where the IRS is losing billions, and corporate tax evaders, as well as the wealthy, defined as people making $400k or more.
Those folks are not the easy audit, however, as they have lawyers and are organized and can fight for years in court. Some say the service tends to audit the average American more because they are fearful and unorganized and so collection is easier, faster and can show real revenue results more quickly. Whatever the business, results tend to matter, so it becomes the low hanging fruit that is taken, instead of the intended targets, who have the resources to battle the service in court for years.
Rather than believe them or be fearful, all middle-class Americans need to do is meet with a tax planner and create a plan, then create good record keeping processes to back up their deductions and actions.
Example: A plumber making $325,000 gets audited. He is not good at keeping records and at tax time he tends to guess at the numbers he is giving his preparer. “How many business miles did you drive this year Bob?” He answers, “10,000 miles.” At the audit, the agent asks to see the records, since the agent knows 10,000 is a guess. Bob has no written proof, so the auditor allows only 5,000 miles, costing Bob over $2,500 in lost deductions.
Instead, knowing the IRS is increasing staffing levels, Bob could simply make more effort at accuracy. His tax planner shows him an App he can download to his cell phone which will keep perfect records of every drive.
The next time he goes to his preparer, instead of guessing 10,000 miles, he opens the App, which has been doing the work for him, and says, “I drove 11,234 business miles, 2,350 personal miles and 1,344 commuting miles.” Now when the IRS agent asks for proof, Bob takes out his phone and opens the App and the agent says “OK, you can keep that deduction.”
Don’t be scared of the new reality! Get organized, pay more attention and work with a tax planner. You’ll be fine if you do!