The IRS has announced a renewed focus on 2025 IRS enforcement, backed by increased funding and personnel. This shift means businesses will face heightened scrutiny, making compliance more critical than ever. Proactively preparing your business now can save you from audits, penalties, and potential financial strain in the coming year.
In this article, we’ll walk you through actionable steps to ensure your business is audit-ready and fully compliant as 2024 draws to a close.
What’s Driving the 2025 IRS Enforcement Surge?
1. Increased Funding for IRS Enforcement
The Inflation Reduction Act allocated significant resources to modernize IRS operations, hiring more auditors and improving technology to identify tax discrepancies.
2. Focus on Underreported Income
The IRS is ramping up efforts to target high-income earners and businesses suspected of underreporting income, ensuring compliance across the board.
3. Improved Audit Algorithms
Enhanced technology enables the IRS to flag irregularities with greater precision, increasing the likelihood of audits for businesses with discrepancies in their filings.
Steps to Prepare for the 2025 IRS Enforcement Surge
1. Conduct a Preemptive Tax Compliance Review
A compliance review is a critical step in preparing for the 2025 IRS enforcement surge. A thorough internal review of your financial records can uncover potential issues before the IRS does. Focus on:
- Consistency: Ensure your income, deductions, and credits align with supporting documentation.
- Accuracy: Check for mathematical errors and inconsistencies in filings.
- Completeness: Verify that all required information is included in your returns.
2. Keep Detailed and Organized Records
The IRS requires businesses to retain records for at least three years. To be audit-ready:
- Digitize Records: Use cloud storage for easy access and backup.
- Categorize Expenses: Maintain separate records for business and personal expenses.
- Document Transactions: Ensure all transactions are accompanied by invoices, receipts, or contracts.
3. Strengthen Payroll and Employee Classification Practices
Employee misclassification is a common trigger for audits.
- Review Employee Status: Ensure proper classification between employees and independent contractors.
- Check Payroll Taxes: Verify accurate calculation and timely submission of payroll taxes.
4. Conduct Regular Reconciliations
Reconcile bank statements, financial accounts, and tax returns monthly to spot discrepancies early. Regular reconciliations help:
- Identify missing transactions.
- Detect errors in reporting.
- Ensure consistency between accounts and filings.
5. Review Deductions and Credits
Improperly claimed deductions or credits are red flags for audits. Common issues to double-check:
- Home Office Deductions: Ensure they meet IRS requirements.
- R&D Credits: Verify documentation for research-related expenses.
- Charitable Donations: Retain acknowledgement letters for contributions.
6. Partner with a CPA for Audit Readiness
Working with an experienced CPA can help identify risks and implement strategies to mitigate them. CPAs can:
- Conduct pre-audit checks.
- Provide guidance on complex tax issues.
- Assist your business during IRS inquiries.
Common Audit Triggers to Avoid in 2025
- Underreported Income: Ensure all income sources are accurately reported.
- High Deductions Relative to Income: Large deductions may raise red flags.
- Unfiled Tax Returns: Missing filings are a guaranteed audit trigger.
- Cash Transactions: Excessive cash payments without documentation can appear suspicious.
The Cost of Non-Compliance: Why Preparation Matters
An IRS audit can lead to penalties, interest charges, and damage to your business reputation. Investing in preparation now can:
- Reduce financial risks.
- Save time and stress during potential audits.
- Ensure your business remains compliant with evolving regulations.
Act Now: Secure Your Audit-Ready Plan Before Year-End
As the 2025 IRS enforcement surge ramps up, the best defense is a proactive approach. Don’t wait until 2025 to address potential compliance issues. Ensure your business is prepared, protected, and positioned for success.
Ready to safeguard your business from IRS scrutiny? Contact GreenGrowth CPAs today and get expert guidance tailored to your needs.
