In the near future, many small business owners across the country may soon receive letters from the Internal Revenue Service about the income they've reported on their taxes in the last few years.
The IRS recently noted that it would begin a new effort to discover whether there are any small businesses underreporting their income on their annual tax filings, according to a report from the Wall Street Journal. The agency is now undergoing the significant effort and has already sent letters about its plans to investigate companies to thousands of small business owners nationwide in an effort to spot any which may have underreported cash sales to reduce their tax burdens.
However, it should be noted that the IRS is emphatic about the fact that these are not audits, at least not yet, the report said. At first, the tax agency is simply requesting more information from the companies which receive the notifications, but they are nonetheless sparking a bit of a panic.
In all, the IRS expects to send out as many as 20,000 of these letters in the first run of the program, and many experts believe that number will only grow in the future, the report said. They are typically sent to businesses for which gross receipts seem "unusually low" for companies of their size, and owners will have 30 days to respond to the request for more information.
The reaction and what comes next
Obviously, receiving this kind of letter can be alarming for an owner, but it's important to remember that these are merely inquiries, and nothing major has necessarily happened at this point, the report said. Nonetheless, owners should take as many precautions as possible to make sure they're able to gather all the information requested by the tax agency. In some cases, checking over the necessary documents may help owners to discover whether there were indeed any discrepancies. The IRS, by sending these letters, may not be implying any willful misreporting, but is simply reminding owners of all their obligations under the tax code, which can sometimes be difficult to understand even for many professionals.
"There's an emotional thing when you get a pretty ominous-looking letter from the IRS, [saying] you might have done some bad things," Tom Reese, who owns a company which operates a small chain of stores that fit and sell hearing aids, told the newspaper. "I really work hard with my accountant to make sure that I not only follow the law, but follow the letter of the law."
After these initial efforts are completed, the IRS says it plans to evaluate the results, the report said. It also claims to be trying its hardest to make sure companies and tax professionals alike are not overly burdened by the efforts to verify the data they reported to the agency in the first place. However, it does want to focus on eliminating any discrepancies as quickly as possible. Moreover, it wants to make sure that the data it receives about card transactions nationwide is as accurate as it possibly can be.
"An important component of this project is [to] help ensure that people who are non-compliant don't get an unfair advantage over those that play by the rules and follow the law," the IRS told the newspaper.
Owners dealing with any issues related to revenues and how they must be reported to the IRS may also want to consider ways in which they can reduce their companies' costs to free up a little more money even if they end up having to face higher tax bills. More affordable small business insurance plans including liability insurance may be found simply by shopping around.