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Inflation Reduction Act Part IV: More Audits, More Tax Collection

inflation reduction act

We know that an increased budget for enforcement will lead to more audits. More audits mean more tax collection. The question that remains to be answered is exactly how much federal tax revenue the IRS expects to collect with the new Inflation Reduction Act

How much taxes will be collected with the Inflation Reduction Act? 

The Congressional Budget Office recently released a report that estimated the budgetary effects of the Inflation Reduction Act. They expect increased collections of about $203 billion over the next decade. This would raise federal revenue by almost $125 billion during that 10-year period after taking into account the $80 billion cost of the act.  

Why is tougher enforcement necessary? 

According to the IRS, most taxpayers pay their federal taxes willingly and on time. However, that still leaves nearly $400 billion in uncollected tax payments. They believe that tougher enforcement can help close the tax gap. In other words, stricter enforcement will help lessen the difference between the amount of taxes that is collected, and the amount taxpayers owe.  

IRS enforcement, audits in particular, has been less frequent in the last decade. In fact, audit rates have dropped for all levels of income between 2010 and 2019. In fact, a tax return was three times more likely to be audited in 2010 than in 2019. However, this is not due to the IRS becoming more lenient or forgiving. The issue centers around staffing levels and funding. The IRS is expecting the new funding from the Inflation Reduction Act to help balance staffing levels in order to be able to collect more tax revenue.  

Are you prepared for increased tax collection? 

With increased IRS tax collection approaching, it’s important to be prepared. It’s never too late to seek tax debt relief. Get protected from the stress and burdens that come with IRS tax collection. Give us a call at 800-536-0734 for a free consultation. 

Optima Newsletter – August: What is the Inflation Reduction Act?

news letter

What is the Inflation Reduction Act?

From a pandemic to inflation, American taxpayers haven’t been able to catch a break since 2020. To combat the current state of the economy, Senate has passed a new bill with a ten-year plan called the Inflation Reduction Act.

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How Filing an Extension Affects Your Taxes

With a massive increase in taxpayers filing for an extension, what does this mean for people who owe? How does the extension deadline work? Hosts CEO David King and Lead Tax Attorney Philip Hwang discuss these details and more in this week’s episode.

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Tax Rules for an Airbnb or Vacation Rental

Renting out your property as an Airbnb can be a good way to secure residual income. While Airbnb may send you a tax form at the end of the year, it’s important to understand your tax responsibilities to check for errors and in the event you aren’t issued a form.

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Do you provide over half the cost of living for your household? You may want to consider filing your taxes as head of household, which could qualify you for a higher standard deduction. Head-of-household filing status also provides lower tax rates than filing as single or married and filing separately.

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Inflation Reduction Act Part III: More Auditors, More Audits

inflation reduction act

More than half of the $80 billion Inflation Reduction Act will be spent on IRS enforcement, including activities that aim to collect back taxes, conduct criminal investigations, monitor digital assets, obtain legal support and hire thousands of new IRS auditors. 

How many auditors will the IRS hire? 

The IRS is looking to hire nearly 87,000 employees over the next 10 years, a major increase from its current 80,000 employees. A majority of the new hires will help bring IRS staffing levels back up to par to maintain efficiency. As of now, it remains to be seen exactly how many of the new hires will be responsible for auditing since the bill does not set any requirements for staffing. It will be up to the IRS to determine the number of enforcement agents that are hired, in addition to all other positions within the agency.  

Who will be audited? 

More auditors mean more audits, so understandably taxpayers are wondering if they will be impacted. The U.S. Treasury Department has said that the low and middle-class, as well as small businesses, will not be the focus of the upcoming increased enforcement activity. In addition, the Biden Administration has called for the IRS to focus its auditing efforts on high-income taxpayers and large corporations that earn more than $400,000 per year. The bill itself includes language that states the goal of the Inflation Reduction Act is not to increase taxes for any individual or entity earning less than $400,000 per year.  

Are you prepared for an audit? 

With increased IRS enforcement activity approaching, it’s important to be prepared. It’s never to late to seek tax debt relief. Let Optima’s team of experts help you get protected from the stress and burdens that come with IRS enforcement. Give us a call at 800-536-0734 for a free consultation. 

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Who is responsible for payroll taxes? CEO David King and Lead Tax Attorney Philip Hwang discuss everything you need to know regarding payroll taxes, including tips on what to do if you find yourself in trouble with the IRS.

Inflation Reduction Act Part II: IRS Spending

Inflation

Between the inflation, the pandemic, and the Inflation Reduction Act, now is a scary time to owe back taxes. The bill has passed, granting the IRS $80 billion dollars in funds for their activity. We’re expecting a massive increase in the agency’s enforcement.

How will $80 billion impact the IRS?

The funds from the Inflation Reduction Act will be added on to the annual money the IRS receives from Congress, which was about $12.6 billion for 2022. The 50% increase will be paid across four departments over the next ten years.

More than half of the funds are specifically going toward enforcement activity. IRS enforcement includes collecting back taxes, conducting criminal investigations, legal support, and monitoring digital assets.The other three areas that will be supported include:

  • IRS operations- $25 billion for expenses such as rent, printing, postage, and telecommunications.
  • Customer service- $4.8 billion would be used for updating service technology. A callback service is in the talks.
  • Taxpayer assistance- $3 billion would go toward filing and account services, or other taxpayer needs.

What to expect from IRS collection activity

With a large budget provided by the Inflation Reduction Act, the IRS is expected to collect roughly $203 billion in federal tax revenue over the span of a decade. The net federal revenue would be raised by more than $124 billion.

Government officials are also expecting the tax gap to close. Meaning, the difference between the amount of taxes being collected and what taxpayers actually owe will be closer.

Are you prepared for increased collection activity?

If you haven’t started the process of tax debt relief, it’s not too late. Being prepared with a team of professionals that are already working on your compliance could spare you from more penalties, stress, and possibly help you save some money. Give Optima a call for a free consultation at 800-536-0734.