Next year the IRS has announced 8 areas of audit for small business they will target next year.IRS is coming down on small business. IRS is trying to collect more lost taxes. Small businesses who the agency claims are underreporting their earnings and contributing 84% of the $450 billion tax gap, the IRS is increasing audits.

Here are the 8 areas of audit that are changing for small business owners.

1. High Income Earners
Small business owners who earn more than $200,000 a year in gross income before expenses and deductions are considered high income earners by the IRS. Last year saw a significant 4.1% increase in percentage of those earning more than $1 million income being audited by the IRS, from 8.4% in 2010 to 12.5% in 2011. In 2013, the IRS will focus on taxpayers with a total income of more than $1 million who file a Schedule C business return.
2. Company benefits
The IRS suspects many small businesses do not report their employees’ use of company facilities such as company vehicles given to them as part of their company benefits. The research conducted by the IRS on employment tax compliance indicates that many employers do not fill in details of usage of company cars in their Forms 1099 or W-2s.

3. Matching Form 1099-Ks
By late next year, the IRS plans to match Form 1099-Ks and pilot a business-matching program that can address a large amount of small business noncompliance.

4. Employee Health Insurance
Small businesses enjoy a tax credit for providing employee health insurance but the IRS is wary of the credit being abused. Thus, the IRS will examine small business employers for compliance with eligibility requirements.

5. Classification of Workers
The IRS is concerned that many small businesses classify their workers as independent contractors when they should actually be classed as employees due to the nature of their work. Many small businesses save money by doing so because it generally costs about 30% less to employ someone as an independent contractor than an employee. This includes paying less taxes so the IRS is concerned over the shortfall of taxes paid due to this.

6. Offshore accounts
Small businesses who attempt to hide their taxable assets in offshore accounts will be targeted by the IRS in the coming year. Following the successful Voluntary Disclosure programs that have enabled the IRS to recoup billions in unpaid taxes by individuals and businesses with offshore accounts, the agency is planning to hold another voluntary disclosure program. In addition, the IRS is also working out legislation that will make it obligatory for foreign governments to report details of American-held financial accounts in their countries.

7. Partnerships
Next year, you will probably find the IRS targeting large loss partnerships and specific abuses that the agency has identified from its research.

8. S Corporations
S corporations where losses are taken in excess of basis on shareholder returns will be subjected to more intense scrutiny by the IRS. The IRS plans to review how these computations are made to determine whether tax preparers are properly completing due diligence requirements before deducting losses on Forms 1040. The IRS will also take a closer look at how S corporations use their distributions to avoid payment of Social Security taxes.