If I asked you what is your single largest expense, the quickest answer would come back would be your house/rent. However, that would be the incorrect answer.

After giving it some more thought you would realize that your single largest expense is taxes. Between federal, state, payroll, property, sales tax this is a huge portion of your income.

This past week I attended a CPA continuing education course about tax. And what the IRS has done to try to increase their compliance with tax payers paying what they owe.

In recent years, the IRS has substantially increased its enforcement efforts. These intensified measures aim to ensure compliance and close the tax gap, which is the difference between the taxes owed and the taxes paid on time. Here are some key points and quantified results highlighting the IRS’s increased activities:

1. Increased Audits and Examinations:
   • The IRS conducted over 550,000 audits in 2023, a notable increase from previous years. Of those 550,000 audits 429,235 of them are to individuals with income less than $100k.
   • High-income individuals and large corporations have seen a rise in audit rates, with a focus on complex financial transactions.
2. Enhanced Collection Activities:
   • In 2023, the IRS collected over $7.9 billion through enforcement actions, including levies, liens, and seizures. From those under $100k as well, as opposed to $702 million 4 years ago (see chart below)
   • There was a 40% increase in the issuance of levies and a 20% rise in liens compared to 2020.
3. Criminal Investigations:
   • The IRS Criminal Investigation Division initiated over 3,000 cases in 2023, leading to 2,100 convictions.
   • These efforts have resulted in the recovery of approximately $10 billion in unpaid taxes.
4. Use of Advanced Technology:
   • The IRS has invested in sophisticated data analytics and artificial intelligence to identify and pursue tax non-compliance.
   • This technological advancement has led to a 30% increase in the identification of underreported income.

One major note is when you are filing your taxes make sure that you claim any income that you receive. There is much more punitive action for failing to report income than if you can’t fully support all of the deductions.

Given these increased efforts by the IRS, it is more important than ever to ensure that your tax filings are accurate and compliant with current regulations.

Keeping your tax plan efficient and free of errors loosens the grip that the IRS has on you and your retirement funds.

If you are one that has the majority of your retirement accounts in pre-tax accounts like 401k, 403b, 457, etc. then more than likely you will need to create an advanced strategy to reduce your tax exposure so you can keep as many of those dollars in your household as possible.