4 Strategies to Help Entrepreneurs Solve Tax Return Problems | A businessman

As the deadline for April 15, 2024 has come and gone, many entrepreneurs and small business owners are left struggling with tax issues. The recent crisis has exacerbated these challenges, making now an important time for business leaders to act. Delaying the move can worsen blood pressure and legal consequences.

The latest IRS data highlights the urgency of entrepreneurs to deal with their tax debts. The IRS, which uses money from the Tax Cuts Act, has greatly increased its enforcement efforts. In 2023 alone, the IRS launched a new compliance program targeting low-income taxpayers, targeting more than 125,000 cases since 2017 as part of a major effort to restore justice to the tax system. tax. In addition, the IRS has improved its audit activities, particularly for wealthy individuals and large corporations.

Based on the extensive experience of our tax solutions team at Advanced Tax Solutions, here are four important strategies for entrepreneurs to resolve back taxes and prepare for a successful communication with the IRS.

Related: Top 10 Ways to Avoid an IRS or State Audit

1. Understand urgency and consequences

Ignoring tax issues can have serious consequences. The IRS can impose severe penalties, including a 5% monthly penalty for the first five months, which quickly adds up to 25%. After that, there is an additional penalty of 0.5% per month, plus interest on taxes, penalties and accrued interest. In extreme cases, the IRS can file a property tax return on your behalf, which often ignores deductions and leads to a higher tax liability.

The IRS’s growing budget for enforcement underscores the urgency. In light of the new IRA grants, the White House has drafted a budget plan to increase the IRS’s annual budget by nearly four times over the next decade, to $19.5 billion, and the agency has announced a number of initiatives of many years in several important areas to increase the collection.

2. Collect and organize financial reports

Before contacting the IRS, make sure all financial records are carefully prepared, including income statements, expense receipts and past tax returns. A complete and organized record will make communication with the IRS easier and demonstrate your commitment to resolving the issue.

Use digital tools and accounting software such as Sage, Oracle and Xero to keep track of your financial statements throughout the year. These tools can help you generate detailed reports that are easy to share with your tax professional or the IRS. The accounting software market is growing rapidly, with its value rising from $11,071.6 million in 2018 to $20,408.0 million in 2026, showing a CAGR of 8.02%, in Follow Fortune Business Insights. This approach shows how important these tools are for effective financial management.

Related: Finally, Tax Season is over. Or is it? Here are 5 Things You Should Do All Year to Reduce Tax Time Stress.

3. Seek professional help

Tax administration rules can be difficult, especially with complex tax matters. Hiring a Certified Public Accountant (CPA) or Certified Tax Solution Specialist (CTRS) can be very beneficial. These professionals have the experience to negotiate with the IRS on your behalf, which can reduce your tax liabilities and penalties. They can also provide valuable guidance on preparing your financial statements and ensuring that all documents are correct and complete, to prevent future tax issues.

I have seen many entrepreneurs reduce their tax burden significantly by using professional help. Understanding the elements of tax law and having someone who can communicate effectively with the IRS can make all the difference. Even having a Master’s Degree in Taxation and 30 years of experience, some results appear in my office where I have to collaborate with other experts or lead to another expert who deals with the consumer industry. Understanding your limits is the key to empowerment. Taking a serious issue seriously may require professional help because getting it wrong can be costly in IRS penalties and interest.

That said, unless you have something unusual or confusing, most tax returns can be prepared on their own, especially with the help of tax preparation software. I don’t recommend preparing a tax return with just pen and paper, even though it’s easy. Sadly, the complexity of the tax system has steadily worsened over the years, with no end in sight.

4. Negotiate successfully with the IRS

On May 2, 2024, the IRS released an update on the Policy Implementation Plan, which explains the implementation of the Income Tax Reduction Act (IRA). The update details the IRS’s plan to triple taxes for large corporations with assets over $250 million, increasing from 8.8% in 2019 to 22.6% in 2026. percent. With these changes in place, it’s never been more important to stay vigilant and make sure your financial statements are carefully monitored so you’re prepared for more scrutiny.

When you’re ready to approach the IRS, preparation is key. Start by requesting your tax transcript to get a clear picture of what the IRS knows about your financial situation. Be honest and forthcoming in your communication. Explain the reasons behind your taxes, whether it’s due to financial problems, maintenance or other reasons. The IRS is more likely to work with you if they see a genuine effort to resolve the issue.

Related: 5 Business Tax Audit Tips and What to Do If the IRS Calls

By taking these steps, entrepreneurs can turn their long-overdue tax issues into a manageable one, paving the way for financial stability and peace of mind. Remember, the key is to act now and seek the right help to overcome these problems.