Small Business and the Tax Gap
Current measures being taken to close the tax gap (the difference between taxes paid and tax owed) has begun to disproportionately affect small businesses. Part of this may be attributed to an increase in audits and information reporting requirements for small businesses, such as the new 1099 reporting requirement.
The National Research Program (NRP) generated tax gap estimates suggesting that the underreporting of income by small businesses represents $83-$99 billion of the $150-$187 billion individual income tax gap for 2001. After collection activities the total tax gap went from $345 billion to $190 billion. However, IRS auditors conducting NRP examinations have found that most underreporting of income that occurs is unintentional. The IRS focused its tax-gap study on individual tax income returns, and on returns not subject to withholding or third party reporting, causing an unfair skew towards small businesses. Hopefully, with increased audits, the tax gap will begin to shrink although there are always loopholes that will be used by businesses to decrease their taxable income.
To learn more about this article, visit Small Business and the Tax Gap .
To learn more about tax planning, please contact the Jacksonville and Ponte Vedra Beach law firm of Wood, Atter & Wolf, P.A. or review our other blog at www.businessandtaxlawyerblog.com.
