Will the Inflation Reduction Act Increase Audits for Small Business Taxpayers?

The Inflation Reduction Act (IRA) of 2022 was passed on August 16th, and is generating a lot of buzz. It is a sweeping piece of legislation designed to curb inflation, make health care and prescription drugs more affordable, fight climate change, and ensure large corporations pay their fair share of taxes.

Few aspects of the Inflation Reduction Act (IRA) directly impact small businesses. However, one provision caught the attention of small business owners: $80 billion in increased Internal Revenue Service (IRS) funding, a big chunk of which is designated for reducing the “tax gap.” ?

This increase in funding has small business owners wondering, “Will this increase IRS audits?” You may have heard some lawmakers in Congress and political pundits say that because of the Inflation Protection Act, an “army” of 87,000 new IRS agents will be coming for middle-class taxpayers. But that’s not 100% accurate. In reality, the IRS will likely hire a mix of auditors, taxpayer services, and IT workers.

The burning question on most small business owners’ minds is whether they need to worry about being audited. The short answer is that it depends, but if you or your small business earn under $400,000 per year, your chance of being audited should stay about the same.

If you’re curious about what red flags you should look out for, we’ve put together a list of 5 red flags to look for. If you need help, reach out to Bench ; We're an online bookkeeping service powered by real humans, and we can help.