Small Businesses Should Prepare for Stronger Tax Enforcement

The Inflation Reduction Act of 2022 is providing the IRS with an influx of about $80 billion to modernize outdated technology and rebuild a depleted workforce, which is expected to improve enforcement to the tune of about $200 billion over a decade. Treasury Secretary Janet Yellen directed the agency not to use additional resources to increase audit rates for taxpayers making under $400,000 a year, but the tax returns of high-earning business owners are likely to face more scrutiny than they have in years past.1

Higher audit rates won’t appear overnight, but large investments to upgrade technology could eventually help the IRS develop more advanced enforcement methods. With that in mind, here are some tips to help you avoid unwanted attention from the IRS.

Understand the process. Tax returns are randomly selected, which means you might be audited even if you do everything by the book. However, when your tax return is processed, a computer program screens for anomalies and compares deductions to those of taxpayers with similar incomes. Your return is more likely to be chosen if there’s a higher chance that it would result in the collection of additional taxes, but an audit can also be triggered by a red flag on your return or a simple mistake that leads to additional questions. If selected for a correspondence audit, you may be asked to mail specific information to the IRS. A comprehensive field audit would be conducted at your home, place of business, or accountant’s office.

Avoid common traps. Filing an incomplete tax return (with missing forms or schedules) and not making tax payments on time are surefire ways to attract unwanted attention from the IRS. Taking business deductions that are not in line with industry norms, not categorizing transactions consistently from year to year, having a high number of independent contractors relative to full-time employees, and reporting continuous losses are all situations that can look suspicious, even if they are valid.

Audit Rates Over Time

IRS audit rates for individual, partnership, and S corporation income tax returns have fallen since 2010, a trend that could reverse as the IRS ramps up enforcement.

Individual tax return audits in 2010: $100,000 under $200,000 0.8%; $200,000 under $500,000 2.3%; $500,000 under $1 million $3.6%; $1 million under $5 million 8.2%; $5 million under $10 million 13.5%; $10 million or more 21.5%; Partnership returns 0.5%; S corporation returns 0.4%. Individual tax return audits in 2019: $100,000 under $200,000 0.2%; $200,000 under $500,000 0.2%; $500,000 under $1 million $0.6%; $1 million under $5 million 1.3%; $5 million under $10 million 2.0%; $10 million or more 8.7%; Partnership returns 0.1%; S corporation returns 0.1%.

*Total positive income excludes losses

Source: Internal Revenue Service, 2022

Step up your record-keeping. Taxpayers are required to keep tax records for at least three years from the date the tax return was filed. Organizing and possibly digitizing your records could make it easier to respond to any requests for information that may come from the IRS — and not being able to provide a requested document could negatively impact your audit results.

A heightened focus on compliance means it may be more important than ever to consult an experienced tax professional for personalized guidance, especially if you receive any type of communication from the IRS.

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Angela Englade

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Matthew Englade

Matt graduated in 2008 from Southeastern Louisiana with a bachelor's degree in business. He started his career in financial services, working as a staff member with Delahaye and Associates, where he eventually became a partner.

In 2022 he formed Englade Insurance and Financial Services, where his primary focus is serving his client’s best interest. “But even if you should suffer for what is right, you are blessed.” 1 Peter 3:14

Matt is a resident of Central, LA and enjoys spending time with his wife, Angela, and three children. He also enjoys coaching middle school basketball and giving back to his local church.

Jacob Ashford

Jacob is currently a student at Southeastern Louisiana University and is studying in the College of Business as a Marketing Major.

Jacob pursues his career by working with Matt and Angela in their mission to spread financial sustainability with their current and future clients. He also donates his time to the Southeastern's College of Business by participating in numerous career services for the city of Hammond.

Having two younger sisters, Jacob understands the importance of protecting family values and leading a path to a secure future.

Nathan graduated from Texas A&M University Class of 2006 with a degree in Agriculture Leadership & Development. Nathan has been in public service as a firefighter since 2008. In addition he and Katherine have started, operated, purchased, and sold multiple small business’. Through his experiences; Financial Services has been a lifelong pursuit for Nathan and he is excited to be a resource for people like you, your family, and your business.

Angela Englade

Angela graduated from Southeastern Louisiana University with a Bachelor of Science degree in Nursing. She worked as a Labor and Delivery nurse for 14 years. She decided to continue her love for caring for others through helping people obtain financial health and wellness.

She joined Englade Insurance and Financial Services to guide Matt's clients on becoming aware of potential roadblocks and achieve financial peace of mind. In her free time, she enjoys spending time with her family and exercising.

Along with Matthew, she volunteers many hours to local charities to give back to the community.

Eve is happily married to her best friend Rick since 2012. They enjoy recreational trips like hiking and camping, visiting the beaches in the Gulf of Mexico, and trips to Walt Disney World. They are active in their congregation, donating their time and effort to help run the Audio/Visual presentations for services. She is grateful for all God has given her and believes all the glory goes to Him.

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Matt is a board member of CALEF and is involved committed to its long-term success. The mission of CALEF is to provide police, fire and EMS personnel with the safety equipment they need to serve and protect with excellence. We provide all-day rifle protection and other safety equipment to local law enforcement, fire and EMS personnel. CALEF believes that communities are safer and stronger when local law enforcement, fire and EMS personnel are properly equipped to do their job.

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Matt and Angela are active members of the church and school communities of St. Alphonsus Liguori Catholic Parish. Their mission is to form students in the Catholic Faith spiritually, academically, physically, and culturally in an environment of academic excellence. St. Alphonsus Liguori Catholic School is committed to providing a positive, faith-filled environment for children to learn. Our comprehensive curriculum is designed to promote academic excellence and the spiritual growth of our students, coupled with an appreciation of how service to others makes the world a better place. We strive to expand their potential to become leaders.

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