President Donald Trump’s administration touted the Tax Cuts and Jobs Act (TCJA) as a major break for taxpayers. The administration stated the law, the biggest reform to the tax code in decades, would lead to big tax savings. For some individuals and businesses, it did. For others, not so much. Regardless of the impact, one concern connected to the TCJA and the many changes it resulted in within the tax code could soon become a reality: audits may increase.
Why would audits increase?
The TCJA was not just a big piece of tax reform, it was also extremely complicated. These complex changes made it difficult for taxpayers to apply the new law and may have increased errors. These errors could trigger an increase in federal tax audits.
Why worry about small businesses in particular?
Because of one specific provision that required publication after publication of clarification: the 20% qualified business income deduction provision. This provision was presented by lawmakers as an opportunity for certain small businesses to realize big tax savings.
Even more concerning — the increase may also result in a jump in individual tax audits for business owners with a pass-through entity.
Any tips for taxpayers?
Those who are notified by the IRS of an impending business or individual audit are wise to act to protect their interests. It is important to make copies of all relevant documents and gather previous tax returns. An attorney experienced in tax audits can review the notification and build a case to protect your legal rights throughout the entire process.