We’ve already seen the new Trump administration take swift action on its campaign promises, making bold moves right out of the gate.
I recently published an article where I summarized what we could expect from the new Administration. With these recent developments, I have to be perfectly honest… I didn’t see this one coming.
One of the most significant developments is the recent round of layoffs at the Internal Revenue Service (IRS), impacting approximately 7,000 employees… roughly 7% of the agency’s workforce. Perhaps most notably, over half of those affected belong to the Small Business/Self-Employed Division, which is crucial in assisting (some people may say haunt) entrepreneurs and independent contractors.
This shift raises important questions: What does this mean for IRS services? How will it affect small and medium-sized businesses? And what should business owners do to navigate the changes ahead? Here’s what we know so far.
The IRS Layoffs: What’s Happening?
Layoffs began last Thursday, targeting various IRS departments. Reports suggest these cuts are part of a broader strategy to downsize the federal workforce. The Small Business/Self-Employed Division, one of the agency’s key resources for business owners, has been hit particularly hard.
While the broader implications are still unfolding, one thing is sure: having fewer IRS personnel will change how the agency operates.
What This Means for Small and Medium-Sized Businesses
For small and medium-sized business owners, the IRS can be a key point of contact for tax guidance, compliance, and issue resolution. With fewer staff in the Small Business/Self-Employed Division, business owners can expect longer wait times, fewer available resources, and increased difficulty navigating an already complex tax code.
But is this development good news? Not necessarily…. especially not for the business owner and certainly not for the government. Here’s my take on this:
- Less Oversight = More Errors = More Penalties → With fewer agents to process returns and provide support, errors in tax filings could go unnoticed longer, leading to costly penalties and interest. The IRS’ lack of resources will likely diminish its ability to quickly solve issues and collect the correct amount of taxes from this business segment.
- Longer Resolution Times → If a mistake is made, the IRS backlog could mean it takes months (if not longer) to resolve each issue. During the pandemic crisis, for example, the IRS built up a massive backlog of cases that slowed response times to ridiculous levels. Since former President Biden pledged to rectify this issue by approving increased budgets, I’ve seen many clients receive IRS communications within weeks instead of waiting for months to get an update. Will this move bring yet another backlog issue?
- Increased Need for Compliance & Planning → With the IRS now under a different type of strain… businesses must become even more proactive in their tax planning to avoid potential pitfalls. Spending money on the front end will outperform the costly handling of a mistake with an underperforming machine like the IRS.
From an internal IRS perspective, it’s hard to imagine this wouldn’t lead to fewer audits and enforcement actions from this specific division. Any logical individual would assume so.
But… does that mean small businesses can breathe easy? Or am I just being naïve?
Will Promised IRS Improvements Now Fall Flat?
The prior administration promised to improve IRS efficiency, reduce processing times, and enhance taxpayer support. However, with a significant chunk of its workforce eliminated, these pledges seem increasingly difficult to fulfill.
Without enough agents to keep up with demand, here’s what business owners could see:
- Less accuracy in determining taxable income → Less tax revenue for the government.
- Slower resolution of tax disputes → Mistakes could go unnoticed for longer, increasing interest and penalties.
- Greater reliance on professional tax advisors → Business owners will need expert guidance now more than ever to remain compliant and minimize tax liability.
The bottom line? The IRS may not have the manpower to enforce tax laws as aggressively as before, but that doesn’t mean business owners should let their guard down. If anything, the stakes are even higher.
Can Private Sector Innovation Fill the Gap?
With a reduced workforce, there’s speculation that the private sector might step in to develop more sophisticated software solutions to pick up the slack. Could Elon Musk and his DOGE crew lead the charge? It’s not as far-fetched as it sounds.
Advancements in automation, artificial intelligence, and machine learning could help handle certain IRS functions more efficiently. However, tax administration isn’t just about crunching numbers… it requires nuanced decision-making, interpretation of tax law, and individualized case assessments that software alone can’t replace.
That said… we may see an increasing shift toward digital solutions, such as AI-driven audits and compliance tools. The challenge? Regulatory barriers, data security concerns, and the potential for increased scrutiny of small businesses while larger corporations continue to navigate tax loopholes.
What Should Business Owners Do Now?
With so much uncertainty, the best thing business owners can do is take control of their tax situation before these changes start creating roadblocks. Here’s how:
- Stay Informed – Keep up with tax law updates and IRS policy shifts to avoid unexpected compliance issues.
- Leverage Technology – Invest in reliable tax software to streamline bookkeeping and ensure accurate filings.
- Work with a Tax Strategist – Now more than ever, business owners need expert guidance to navigate the evolving tax landscape, identify deductions, and structure their businesses for maximum tax efficiency.
The reality is clear: A shrinking IRS workforce means increased responsibility on business owners to get their taxes right the first time. Taking proactive steps now can save time, money, and headaches down the road.
Final Thoughts
The recent IRS layoffs have sent shockwaves through the small business community. While fewer agents might mean less immediate scrutiny, it also signals potential disruptions in service, longer wait times, and a greater need for business owners to take tax planning into their own hands.
If you haven’t reviewed your tax strategy recently, now is the time. Proactive planning can help you avoid penalties, optimize deductions, and ensure your business stays compliant… without unnecessary stress.
As always, I’m here to help guide you through this new landscape, ensuring you stay compliant while minimizing your tax liability. If you’re ready to take control of your tax strategy, book a free consultation today.
Welcome to the New Age of Accounting. Let’s begin.
Chris is the Managing Partner at Weston Tax Associates, a best-selling author, and a renowned tax strategist. With over 20 years of expertise in tax and corporate finance, he simplifies complex tax concepts into actionable strategies that drive business growth. Originally from Sweden, he now lives in Florida with his wife and two sons.
