Those who make more than $400,000 aren't the only people the IRS is looking at regardless of what you hear in the media.
The IRS believes that sole proprietors' underreporting of income and overreporting of expenses cost the government about $182 billion of projected lost revenue not paid voluntarily in tax year 2021 alone. This figure doesn't even take into consideration underpaid or unpaid self-employment taxes.
Here are some of the suggestions that government auditors are looking at to lower noncompliance:
- Education & guidance for sole proprietors, especially those first time Schedule C filers
- Making it easier to allow the IRS to reclassify individuals from independent contractors to employees
- Changing the Schedule C to add questions on the amount of cash vs credit received
- Sending out compliance letters to let taxpayers or their preparers fix issues to avoid an audit
- Implementing voluntary tax withholding tax withholding for business owners
- Offering self-employed people a standard deduction for their business instead of reporting actual business expenses
- Improving technology to identify overstated business deductions (which they are already doing)
Many of these ideas would require legislation, so are probably dead on arrival.