Posted on | November 20, 2009 | No Comments
I expect to see a significant increase in the number of audits by the IRS. The trend has been upward for several years now and I expect that to continue. As I have previously stated, one of the primary areas of interest by the IRS is Schedule C businesses. The IRS is in the process of hiring another 2200 auditors and collectors and it is looking to find every tax dollar it can.
With the economy still in bad shape that means tax revenues are way down. You would think the government would slow it’s spending. No, just the oposite, spending is increasing at an alarming rate. So, with spending up and tax revenues down, the Congress and the Administration have asked the IRS to work harder to find as many tax dollars as possible.
I expect the IRS to continue to look hard at mortgage interest deductions. There are specific limits on what can and what cannot be taken as a mortgage interest deduction. The IRS has already begun to focus on this and I expect them to do even more. I will write a blog on mortgage interest deductions sometime in the next few weeks.
Another area of emphasis by the IRS is to coordinate with states to look hard a small businesses to find those businesses that have misclassified workers as Independent Contractors (IC) to avoid paying employment taxes. When they find those companies I expect the IRS to go back several years and to apply hefty penalties to those they determine are misclassifying employees as IC’s.
There will be other things the IRS will focus on as well, so taxpayer beware! Know the rules and follow them. This is not the time to be bending or breaking the rules. If your not sure what the rules are, talk to a professional. If you are operating in a gray area, clean up your act before it is too late.