Sometimes I come across a story that sends thoughts rambling in many different directions and this happened last week. I will then start this entry by asking forgiveness since it also promises to go all over the place.

This started with an article entitled “IRS tax audits may show unintended racial, ethnic bias.” And even after reading the article, I will agree that this it is indeed unintended. The bias largely comes about as a result of the IRS looking closer at tax returns that claim certain tax credits.

The fact that some of these credits are available to low-income taxpayers is what leads to this apparent bias. So then even if the IRS isn’t targeting any ethnic group, one must wonder why a breakdown by income shows a racial divide. This isn’t the place to get into why this may be, but it is just unfortunate no matter the reasons.

Then, however, I got to thinking about how this reflects upon how the IRS has stated in recent years that it is committing itself to tracking down more high-income taxpayers who have not been paying their full share. And doesn’t that just make more sense?

I mean, if the agency spends time chasing down low-income taxpayers who have claimed credits they may not be eligible for, what is going to be the outcome there? We are talking about a small amount of money that may be difficult to actually collect if it is determined to be owed. On the other hand, if you track down more high-income taxpayers, we are then talking about higher amounts of money with a higher probability of actually acquiring it if it is owed.

But then at the same time, is it any fairer to target those with higher incomes than it is to target those with lower ones?

In the end, this is one of those situations where there is no really good answer. On the one hand, a completely random audit system would seem the fairest. But on the other hand, this would result in more audits that clearly never had to happen and then never stand to result in getting money that is still owed.

And in those areas where this is no clear answer, you can be sure that this push-and-pull between different viewpoints will continue into the future. The only conclusion we should draw then is to continue doing the best we legally can under the tax system we are given. And that way, no matter how audits are determined, we can be comfortable that we can survive one.
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Warmly,

Josh Bousquet
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It’s Memorial Day on Monday … how did this happen?

The calendar often feels like it can play tricks on us, and this can be one of them. When it comes to business timing, the calendar flips, we worry about wrapping things up from the previous year, then it’s tax time, and things feel normal for a blink before we reach the summer.

Where does the time go?

And once we reach summer, there’s a big move toward vacations and frankly worrying a little bit less about exactly how much work is done. Many of us are already looking forward to those times with them so temptingly close and there’s nothing wrong with that.

This blog is not then going to be some plea to not tune out for the summer and instead be sure that you can stay on top of things. It is, however, going to caution that you first ensure you can afford that time off.

We talk about procrastination during the tax season because it is the time of year when it can come into sharpest focus because of imminent deadlines. Of course it is not the only time procrastination happens, however. And much like during tax season, finishing those things you have been putting off can allow you to get to a spot of comfort and relaxation.

For many, this can be easy when it comes to summertime vacations. If you earn the vast majority of your income as a W2 employee, well, just not working for a week or two (or more!) makes it easy to shut down and enjoy. For many small business owners, however, there are a lot more boxes to check and things to put in order before one can really enjoy that down time.

This is not the place to discuss what those to-do lists could include, for they can be wildly different for different businesses. A commonality, however, is that no matter what type of business you are, there is a list. And I would be willing to bet that everyone has something that they could be working on now to help get things in order even if your vacation is two months away.

Wait, doesn’t that sound so far away?

Yes, it does, but before you know it, you are going to look at the calendar, it is going to be closer than you believe, and you will wish you jumped on it sooner. 

Warmly,

Josh Bousquet
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Now that we are a month beyond the regular tax filing deadline, most people don’t want to think about taxes anymore. If you happen to receive a letter form the IRS, though, then it becomes impossible to not do so. And of course when this letter comes, it immediately feels huge and we envision it as a giant problem because there is no way the agency is contacting us with good news. Last week, the IRS released information informing taxpayers what to do if they do receive such a letter and I thought it was worth spending some time discussing that information because of how difficult it can be to think through things in the moment it is received.

So first, actually take the time to understand what the letter is saying. Any notice you receive will deal with a specific issue from a specific tax year. The IRS feels like such an amorphous, almost omnipotent entity that it can often feel like anything coming from it has the same difficult-to-pinpoint status. But instead, it will let you know exactly what it concerns and chances are then at least closer to 50/50 that you will be aware of what it is referring to. You may disagree with their take on it, but it may not be the surprise it feels like when it suddenly shows up in your mailbox.

And then, if you are aware of the issue and already know it needs to be addressed, the letter should also include instructions on what your next steps need to be. As long as you follow what you need to do with the agency, any visions of guys in black coats and sunglasses surrounding your home can be pushed away.

Of course, there are also cases when the information you receive may be new to you or you may disagree with the action the agency is taking. Sometimes this comes in the form of a changed or corrected tax return. If this happens, again, read the letter, see what it says, and it is possible that you forgot to include a number from a tax form on your return, and the IRS is just correcting for that.

If you completely disagree with what some notices says, though, at that point you are likely best served by consulting your tax professional. They can help you see exactly why you are receiving the letter, determine if it is worth battling and help you take forward steps from there.

Finally, when it comes to legitimacy, it is worth a reminder to say that the IRS will never contact you through social media or a text message. The first contact from the agency almost always comes through the mail. If you first hear about a tax issue that you did not know about through any means other than the mail, it is very likely a scam, deserves no notice, and no action should be taken on your part.

Warmly,

Josh Bousquet
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Over the past few years, it has become ever clearer how much the IRS needed to work toward modernizing as it seemed to be falling behind and ever more outpaced by technology, making its service feel worse and worse. Thankfully, it does seem to now be making some forward steps. This doesn’t mean that things are perfect, but it does mean that things are at least being addressed.

As part of its plans to move forward, the IRS has released its latest Strategic Operating Plan that includes the following five key objectives:

• Objective 1. Dramatically improve services to help taxpayers meet their obligations and receive the tax incentives for which they are eligible.
• Objective 2. Quickly resolve taxpayer issues when they arise.
• Objective 3. Focus expanded enforcement on taxpayers with complex tax filings and high-dollar noncompliance to address the tax gap.
• Objective 4. Deliver cutting-edge technology, data and analytics to operate more effectively.
• Objective 5. Attract, retain and empower a highly skilled, diverse workforce and develop a culture that is better equipped to deliver results for taxpayers.

Granted, none of these comes across as anything earth-shattering and instead are things most probably assume it is just doing all the time. I do want to spend some time on Objective 3, however, since the agency has indicated further commitment to addressing that issue.

Looking toward tax year 2026, the IRS is planning on getting audit rates on large corporations with assets over $250 million to 22.6%, up from 8.8% in 2019. In addition, audit rates on large, complex partnerships are looking to get to 1% from .1% in 2019. And finally, audit rates on wealthy individuals with income of over $10 million has a target audit rate of 16.5% from 11% in 2019.

Of course, those that fit into these categories are a minority of all taxpayers. They are significant jumps, though, so those who do fall into those groups may want to give a little extra attention to making sure everything is in order when it comes to tax filing in the coming years.

Also worth noting, though, is the fact that the IRS has also emphasized that audit rates will not increase for small businesses and individuals earning under $400,000. So almost everyone is safe from any increased scrutiny … and we can get better service … and those who do owe more money are going to be tracked down more to pay it …

Boy, if all this actually happens, maybe it won’t be so bad.

Warmly,

Josh Bousquet
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Happy National Small Business Week!

Okay, you probably didn’t even know this was happening. I suppose it is not the most celebrated of fake holidays (It’s tough for anyone to hold a candle to February 22 – National Margarita Day) but it is a real thing and something that we wanted to give a little time to in our world.

After all, small business is even part of our name, it is what we do.

And since it is what we do, it does only feel right that a week is chosen to spotlight these businesses, giving a little extra time and attention to hopefully get them a little extra success.

For you see, part of why we love what we do is the help that we can give others. If our clients succeed, then we succeed. And one of the toughest parts of starting a small business is that many of them are not started by businesspeople. Instead, what usually happens is that someone has a passion that they wish they could turn into a career and find an angle to start a business to do that.

But how do you even set up a business?

How do you get paid once you have set up a business?

How do you keep track of your finances once you are getting paid?

Does filing your taxes change when you are a business?

The fact that these questions exist makes a lot of sense. How can you be expected to know something when you have zero experience with it before then?

Possibly unfortunately, many new small business owners try to tackle these issues themselves. It is not as if one can’t find these answers and implement them perfectly, but it takes time and that is something one may not be able to afford while trying to do all the other things involved with running a business. And many of those other things you must do, well, those are the ones you felt passionate about in the first place and actually wanted to do.

Now of course, to seek help from others to take care of these tasks does get a business owner back that time, but it costs money, which is something that can often feel in short supply when just starting up. This can be a tough push-and-pull situation without easy answers.

But for anyone out there reading this, if you do reach a point where it will be worth partnering with someone who is willing to commit to your excellence alongside you, we are always happy to help.

Warmly,

Josh Bousquet
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