Unfortunately, you are aware that small business clients frequently need to pay more attention to their bookkeeping, expense paperwork, and other tax-related obligations.
Many are concerned about the Inflation Reduction Act of 2022, which calls for an increase in federal spending of $80 billion and hiring up to 87,000 additional IRS employees over the next ten years. It is always a good business practice to make sure your clients are ready for any situation, even though the Treasury Department has stated that these resources won’t be used to increase audit scrutiny in small businesses and lower-income individuals.
The tax data indicates that small businesses with moderate incomes, not the wealthy, are the most frequently targeted, so small businesses will be most impacted. As bad as the possibility of being found out of a mistake or fraud may be, the real burden would fall on companies that can’t afford to hire the required lawyers and accountants, which would have a negative impact on their bottom line, causing lost productivity, and cause stress.
Concerns were further compounded by the 2017 Tax Cuts and Jobs Act’s distinction between small and large corporations. The benefit of only paying one tax applies to “pass-through” entities like partnerships, S-corporations, LLCs, and sole proprietorships. However, some detractors have pointed out that the IRS was given the authority to choose which small businesses can qualify for the qualified business deduction specified by that law, as noted by Jim Blasingame of The Small Business Advocate Radio Show.
As audits increase in volume and rigor over the next ten years, accountants will be forced to document their clients’ expenses. Unfortunately, you are aware that your small business clients frequently ignore their bookkeeping, expense reporting, and other tax-related obligations.
Reiterate any previous counsel you may have given to existing clients regarding the information they should track and when. Remind them that accuracy is crucial for their company’s future. Explain how an audit will take time away from them that they could be spending on their business, and how the longer the process takes, the shoddier or more incomplete their records are. Remind them that incorrect tax filings can result in financial and occasionally criminal penalties and put their company at risk. Remind them that maintaining accurate financial records has additional advantages, including improving their ability to obtain funding from a lender and enabling them to grow their business through informed decision-making.
Make sure the client is aware of what needs to be recorded at the very least to make everyone’s life easier. Customers should stay away from desk drawers and shoe boxes. They must have a system in place to keep track of their expenses as they occur. Businesses that are careful and well-organized may find that a spreadsheet can serve the same function. However, you and they both need to be dubious of their dependability. Too many people have come to realize over time that information can be overlooked, entered incorrectly, added incorrectly, or inadvertently overwritten.
Encourage clients to have a straightforward tool that makes it simple to scan paper receipts, take pictures with a phone, or import email receipts directly into a financial management system as they become available. To make the task even simpler, these platforms can even use artificial intelligence to assign expenses to the correct account as soon as they are secured. Your responsibility as a CPA is to constantly remind your client to enter their receipts and invoices into the system.
The government’s intention to strengthen the IRS may or may not weaken the small business foundation of America; only time will tell. However, even if the clients of rival accounting firms suffer harm, your clients can avoid it if you insist that they use technology to gather the data necessary for filing taxes correctly. If it does, their audit will be straightforward, and your work for them will be simpler for you and your office.
The tax laws are very complex. Our short blog articles cannot cover in full all the nuances of the rules. Your specific facts may hold various opportunities and possible risks that only trained, experienced, and highly qualified tax specialists can spot. We encourage you to find such help, rather than trying to figure it all out on your own. Consider giving this marketplace a try by posting your project and signing up here.
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