Small business owners to receive more IRS scrutiny?
When a group of people decide to start a business, there are many things that they will need to do before they will begin to capitalize on their idea. They will need to find a location that offers them the greatest chance of success. Also, they will have to find a way to produce their goods or provide their services in a cost-efficient manner so that they can maximize their profits.
Before any of this is done, the owners will need to carefully consider the various entity types that are available when they are setting up their businesses. They want to create a structure that limits their personal liability should any issues arise.
Tax consequences are often a major concern of business owners at the time of formation. Each type of entity will have different tax requirements, so it is important that individuals understand their obligations when they are discussing their options.
Recently, the IRS has announced a change that may impact small business owners throughout the country. Officials have said that they could increase the amount of audits on small businesses during the upcoming tax season. In the past, the agency was focused on corporations, but now, the IRS will look more closely at those small business owners who have set up their businesses as partnerships or other “pass-through” type of entities.
These types of businesses are structure so that the businesses themselves are not paying taxes, but instead the owners of the companies are taxed after the income is distributed to the individuals. According to IRS officials, pass-through entities account for 95 percent of all businesses within the United States.
The agency is concerned about the complex nature of some of these types of businesses. Some of the larger businesses have several thousand partners, with multi-leveled distribution plans that can take time for the IRS to break down. The agency has trained more agents to deal with these highly-specialized entities, and this could result in business owners seeing their returns examined more closely, potentially leading to more audits.
Most small business owners need to devote a significant amount of their time and money to the operation of their businesses, and do not want to spend any of their resources dealing with an audit. The penalties that the agency may impose if any mistakes are found could lead to significant hardships for many businesses and their employees.
If you own a business and have a question about a tax-related issue, you should consult an experienced tax law attorney about your specific situation. An attorney will be able to provide you with the detailed guidance that you need to ensure that you comply with all IRS requirements.