Every year, the IRS relentlessly audits and pursues back taxes, and often, small business owners find themselves under the agency’s scrutiny. But why do business owners become prime targets for IRS enforcement? Let’s explore the key reasons behind this prioritization.
- Enormous Back Tax Balances: A US Treasury study reveals a surprising fact: 85% of individuals owing back taxes are W-2 earners with debts less than $25,000. In stark contrast, a common scenario for business owners involves much larger outstanding balances, often exceeding $75,000. Despite earning well “on paper,” many business owners struggle to maintain the cash flow necessary to meet their tax obligations. The IRS naturally prioritizes the collection of these substantial amounts. The IRS also recognizes that most small businesses don’t accurately report cash, and by conducting a cash audit, they can increase the liability by hundreds of thousands of dollars.
- Unfiled Tax Returns Over Several Years: Disorganization often plagues business owners, leading to the neglect of filing tax returns. Unlike not paying taxes, the IRS considers not filing to be a serious offense. When a business owner, apparently successful on paper, fails to file taxes regularly, it attracts heightened scrutiny. The IRS views this neglect as a substantial violation, further intensifying the agency’s focus on these individuals.
- More Assets at Stake: The majority (85%) of those owing less than $25,000 in back taxes likely possess few, if any, substantial assets. On the contrary, business owners, even with significant back tax balances, usually have assets like homes, business tools, and accounts receivable. The IRS, in its pursuit of collections, prioritizes individuals with substantial assets that can potentially be liquidated to settle back tax balances.
Especially as IRS enforcement escalates in 2024 and beyond, business owners employing a passive “hope they don’t catch me” strategy find themselves facing severe consequences. Taking proactive steps to address back tax issues is essential for those aiming to move forward without the looming threat of IRS intervention.
If you find yourself entangled in back tax challenges, taking swift action is paramount. Both the IRS and the State can enter liens and judgments without taking you to court. Both the IRS and the State CAN shut your business down. Even closing a business may not help, and several types of taxes impose personal liability even with the protection of an LLC or a C corporation.
A free assessment call with us provides an opportunity to connect with a licensed tax professional who can assess your situation and recommend effective strategies for resolution.
As the IRS continues to ramp up audits and target back tax issues, small business owners need to recognize the urgency of addressing these challenges. The proactive approach involves acknowledging the severity of the situation and seeking professional assistance to navigate the complexities of back tax resolution. Those who take decisive steps now can pave the way for a more secure financial future, as well as be able to focus more on their business to grow it, rather than the stress of dealing with back taxes.
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