IRS to audit more small businesses

The tax gap increased again last year, so Congress is asking the IRS to step up enforcement in an attempt to narrow this gap.

The IRS will step up enforcement by doing more audits and auditing smarter.

One way they will be "auditing smarter" is by focusing their audit efforts on:

• Sole proprietors - to look for under-reported income and inflated write-offs
• S corporations and parternships - the main focus will be on S corporation owners who take dividends instead of salaries to reduce the amount of payroll tax they pay.
• Individuals - the IRS will be scrutinizing Itemized Deductions (Schedule A), the Earned Income Credit (EIC), and capital gains.

This news combined with the recent proposal in President Bush’s budget that would require brokers such as eBay and Amazon to report personal data on customers to the IRS (see ‘Are you ready for the ecommerce tax?‘) shows me that the IRS is serious about closing the tax gap. I only hope that the IRS doesn’t hurt the honest small business owner in the process. 

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Tags: ebay tax, income tax on ebay sales, small business tax, audit, IRS, tax gap

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