An increase in income tax rate means you'll pay a higher percentage of your income to the government. This directly reduces your disposable income, the money you have left after taxes for spending or saving. This can make it harder to afford basic necessities, save for retirement, or invest in your future.

Saying It Out Loud, By Pat Soldano. August 2024.

By Patricia M. Soldano
President
Family Enterprise USA

Watch Out Family Business Pass-Throughs, The IRS Is Flexing Its Muscle with New Funding and Big Targets

 

The Internal Revenue Service is not fooling around.

 

With its billions in new funding, our U.S. tax department is hiring, investigating, and collecting. The big targets include “complex pass-through entities,” which unfortunately make up over 80% of America’s family businesses.

The $60 billion the IRS received under the Inflation Reduction Act has put thousands to work on new audits. Be prepared for a knock on the metaphorical door.

There are a few easy marks.

The first audit wave is focused on complex pass-through entities, but they are also zeroing-in on high-flying private jet users and high-wealth earners with those complicated tax structures and partnerships. Of course, big non-filers and non-payers are first up on the IRS hit list.

Of the new billions in funding, over $45 billion is slated for enforcement on high-income individuals and corporations with “complex tax filing and high-dollar non-compliance.”

You might remember back in September 2023 the IRS announced its goal of hiring 3,700 IRS agents to expand its workforce. It’s happening. They’ve also bought new technologies and are using AI tools to go after non-payers. The IRS even established a new unit called the “Large Business and International (LB&I) Division” to focus specifically on large, complex pass-through entities.

One thing is certain: the audits are coming, and there is no escape. Federal Reserve Chair Janet Yellen even announced the only way out of IRS crosshairs is to make less than $400,000 in annual income.

One IRS sore spot is the personal use of business aircraft. Personal versus business spending by these high-flyers is not easy to track down, the IRS admits it, even with a bit of humor, as IRS Commissioner Danny Werfel’s statement says about this:

“Personal use of corporate jets and other aircraft by executives and others have tax implications, and it’s a complex area where IRS work has been stretched thin. With expanded resources, IRS work in this area will take off. These aircraft audits will help ensure high-income groups aren’t flying under the radar with their tax responsibilities.”

As a start, the IRS is sending compliance letters to 25,000 individuals with incomes exceeding $1 million and to over 100,000 individuals with incomes between $400,000 and $1 million. High net worth “non-filers” have the biggest bullseye on their backs, especially those who have not filed federal income tax returns since 2017. In addition, the agency has initiated examinations of 76 large partnerships across various industries.

It’s no surprise the IRS is focused on tax evaders, especially those earning $1million or more annually, and have a tax debt of $250,000. So, far the IRS has recovered $520 million from this group.

As Commissioner Werfel says, “this is just the beginning.”

If your family business is structured as a pass-through entity you may want to tighten up your accounting, because this time the IRS doesn’t seem to be fooling around.

Apropos of this, the next Congressional Family Business Caucus is scheduled for Sept. 18 on Capitol Hill. The focus of this meeting is “Enterprise Structure,” specifically pass-through entities, as well as expiring tax legislation from the Tax Cuts and Jobs Act.

If you’re interested in attending and having your voice heard contact us at: jgugliada@family-enterpriseusa.com

We hope you've enjoyed this article. While you're here, we have a small favor to ask...

As we prepare for what promises to be a pivotal year for America, we're asking you to consider becoming a member.

The need for fact-based reporting of issues important to multi generational businesses and protecting a lifetime of savings has never been greater. Now more than ever, multi generational businesses and family businesses are under fire. That's why Family Enterprise USA is passionately working to increase the awareness of issues important to generationally-owned family businesses built on hard work, while continuing to strengthen our presence on Capitol Hill. The issues we fight for or against with Congress in Washington DC include high income tax rates, possible elimination of valuation discounts, increase in capital gains tax, enactment of a wealth tax, and the continued burden of the gift tax, estate tax and generation skipping tax.


Family Enterprise USA promotes generationally owned family business creation, growth, viability, and sustainability by advocating for family businesses and their lifetime of savings with Congress in Washington DC.  Since 2007, Family Enterprise USA has represented and celebrated all sizes, professions and industries of family-owned enterprises and multi-generational employers. It is a bi-partisan 501.c3 organization. Family foundations can donate.


#incometax #taxseason #federaltaxpolicy #taxation #EstateTax #Deathtax #wealthtax #taxLegislation #CongressionalCaucus #CapitalGainsTax #incometaxrates #incometaxseason #taxrefund #taxreturn #incometaxreturn #gifttax #Generationskippingtax #InheritanceTax #repealestatetax #FamilyBusiness #promotefamilybusinesses #familyowned #supportlocalbusiness #womeninbusiness #AdvocatingForFamilyBusinesses #Generationallyowned #Multigenerationalbusiness  @FamilyEnterpriseUSA @PolicyAndTaxationGroup @DitchTheEstateTax #FamilyEnterpriseUSA #PolicyAndTaxationGroup #DitchTheEstateTax