IRS Chief Counsel Margie Rollinson announced the creation of a new Associate Office that will focus exclusively on partnerships, S-corporations, trusts and estates.
During the last decade of IRS budget cuts, the pass-through entities like S Corporations and partnerships have not seen too many audits or scrutiny. But this change is imminent because, as we discussed earlier, the IRS will receive an infusion of $60 billion over the next ten years, in addition to its annual appropriation. So now it has enough funding and it’s moving fast.
The IRS also plans to bring in outside experts with private-sector experience regarding pass-throughs to work alongside the expert in-house knowledge of current IRS employees.
Plus, the Internal Revenue Service now is paying a lot more than in the past and it’s attracting more mid-career professionals, so that the Service can increase its compliance enforcement fast and not spend a lot of time on training its employees.
S Corporations
If you have an S Corporation, make sure you have all owners pay themselves reasonable salaries for their work. Pay attention to properly calculate your basis in your S Corporation. When owners take distributions make sure that these are made according to the ownership percentages, so that you do not lose your S Corporation status. Make sure you have the proper support for your deductions, especially in hot areas like vehicle expenses, meals, uniforms, donations. Properly reconcile your books. Do your bank and credit card reconciliations.
Partnerships
If you have a partnership, pay attention to the basis calculation. Another hot are here is the income flowing to the owners that is subject not only to income tax, but also to self-employment tax. Pay attention to the status of the partners, if they are truly limited partners or are they involved in the management of the business? Pay attention to how you deduct your out-of-pocket expenses. And of course, do your reconciliations and have the proper support for your deductions.
Conclusion
If you need tax advice regarding your business or if you are opening a new business, we offer comprehensive business advisory services that help our clients not only avoid IRS headaches, but also save on taxes by having the right tax set-up and strategy. If you are in need of a good CPA firm contact us!
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This material is for informational purposes only. It does not constitute tax, legal or accounting advice.