#10 The Truth: Part 1…The IRS is set to receive approximately $80 billion in increased funding in an effort to increase tax revenue by $203 billion. The claim by the GOP is that this will usher in an army of 87,000 new IRS agents. The truth is that there is not a set agenda to hire 87,000 IRS agents. This number was merely an estimate from the Treasury Department to maintain IRS efficiency. In fact, if you talk to almost any professional tax advisor or preparer, they will tell you the IRS is behind, defunct of good communication and assistance, and performing less audits than ever before. Nonetheless, we can’t ignore the fact that $45.6 billion of this designated funding is to go toward enforcement. The bottom line is no matter your political beliefs you better have your t’s crossed and your i’s dotted.
#9 The Truth: Part 2…The House voted to repeal $72 billion of the increased funding on January 7th of this year, but the probability that this will happen is slim to none. Don’t forget this would also need to be passed by the Senate and signed by the president. That also leaves the Freedom Caucus’ proposal to abolish the IRS completely and substitute this with a “Fair Tax,” which would be a sort of consumption tax like sales tax, completely out of the question. So...yes. You still need to buckle up and be ready.
#8 Who is at Risk?...That may be the million dollar question and literally in some cases. If you think you are safe because you are cash poor and land rich, you may want to think again. Interestingly, low-income earners taking the earned income tax credit were audited 5 ½ times more than EVERYONE else in 2022.1. However, I would not bet that this won’t change. There is a lot of political scrutiny in this area and there will be pressure on the IRS to close the $600 billion tax gap (the difference between what people owe in taxes and what they actually pay). There is also the looming 2026 estate tax cliff, which happens to line up perfectly with the onboarding of agents. So, the answer to our question is ultimately unknown.
#7 Employee Retention Credit (ERC)…There was not any political attention around the announcement made last fall that the IRS had trained at least 300 employees to audit Employee Retention Credits. They also made mention that they would be looking at any criminal activity from companies promoting the credit. Many farmers, ranchers and even business owners do NOT qualify, but have been convinced otherwise by these companies. Just know the IRS is serious and will be aggressive on these claims. Just remember, it is not always true what you don’t know won’t hurt you. This one might, so don’t wait and get some help with this one.
#6 No 1099!No Deduction!…Almost every farm, ranch, and business owners hire people for their services from time to time—day labor, mechanic work, construction, etc. If you paid someone over $600 in the year cumulatively, then you must issue a 1099. Otherwise, there is NOT a deduction! This is also true if the service work was provided by a company. Unless that company is incorporated, which is often impossible to know, you will not get the deduction. Tip: Keep a W-9 on your phone to send to anyone and have it signed before you pay them.
#5 Receive Receipt!…If the risk of an audit has increased, so should your awareness in regard to proper documentation. If you are buying anything—new, used or from your neighbor; get a receipt! If you are trading something for something—get a receipt! Here are the IRS’ five required elements:
- Name of vendor (person or company)
- Date of transaction
- Detailed description of goods
- Purchase price
- How you were paid—cash, check, credit card, VENMO, etc.
#4 Focus on Estate Taxes…We can’t be sure if the government actually made a good business decision (which might be one of the only ones it has made) or if this is just happen chance. In 2026 the amount you can gift and/or leave to heirs without being taxed gets slashed in half. This could be an IRS revenue dream if auditors get trained appropriately and you aren’t prepared. Remember, the IRS usually can include the last three years in an audit, but can go back six years without much cause and infinitely in some cases. This means you better have you gift tax returns in order and your estate planning iron clad!
#3 Confusion Won’t Win an Audit… Albert Einstein stated, “The hardest thing in the world to understand is income tax.” The U.S. tax code is unbelievably complicated and getting more so all of the time. My bet is that even Einstein had a good tax professional. If you are a business owner, you need a tax professional. Sometimes, too, you outgrow the one you had for 10 or 20 years. Sometimes, you even need a team—someone proactive to help you plan and strategize, a surgeon or two that might be needed to get the job done and the practitioner that crosses the t’s and dots the i’s.
#2 Time is NOT on Your Side…2026 is right around the corner. We briefly talked about the estate tax exemption amount getting slashed, but that is only a piece of what is headed for the chopping block. Almost all of the 2016 Tax Reform is scheduled to sunset. This means we are facing the possibility of higher tax rates, the disappearance of the 20% deduction for many business owners through Section 199A and much more. Now is the time to do some serious hedge planning. Every year you wait, you could be losing opportunity.
#1 Taxes Aren’t the Objective…What does it mean for you to “live LIFE on purpose?” I would bet the word “taxes” are not in you answer. Taxes are a pain, but they aren’t life’s objective. We have seen too many tax plans over the years that actually hurt the family in the long-run. Why? Because no one began with the end in mind. You need a Life Planner, who can also be your personal CFO. They know you and your current situation, your future and goals, your family dynamics and your stance about a multitude of things. They are versed in a multitude of areas, but an expert at none in particular. They know tax planning, financial planning, risk management, retirement planning, estate planning, business planning, liability planning and various other areas. Why? It is so they can help you make sure everything you do is from a holistic perspective and makes sense not just for today, but for years and years to come. Why? It is so you are not worried about 87,000 IRS agents or any other money issue. It is so you can stay focused on things that are most important to you and simply live Life on purpose!