What I'm about to tell you may be a looming problem for your clients.
What I'll do here is to frame the problem in terms of numbers that are currently in the news. You'll tell me if you think this situation will come down on the shoulders of your clients. If it is, maybe we can work together to solve it for them.
Here are the numbers I'm referring to:
The top 1% of taxpayers (AGI above $548,336) paid taxes at an average rate of 26%. That rate is eight times higher than the bottom half (50%) of taxpayers that paid an average rate of 3%.
The top 50 percent of all taxpayers paid 98 percent of all federal individual income taxes, while the bottom 50 percent paid the remaining 2.3 percent.
There is a $600 billion annual gap between taxes legally owed and taxes paid.
Thanks to funding provided by the Inflation Reduction Act (2022), the IRS plans to shrink this gap in part by spending $60 billion on enforcement.
(By 2031, the IRS will be 90 percent larger than it is today and its headcount will more than double. Of the $80 billion provided by the bill, $60 billion will be spent on enforcement. Over the next couple of years [2023-2024], the IRS will spend $8.64 billion to hire 7,239 enforcement staff.)
The $600 billion gap disproportionately reflects noncompliance with the nation's tax laws by high-income people. Roughly 28% of the gap is owed by this group.
In light of all this, the pain we are looking to address is this: business owners simply don’t have enough options for shielding their income from taxes.
In a strange way, we're actually on the side of the IRS as we think every tax dollar owed should be paid. However, we also believe that high-income earners largely unaware of all the options available to them for legally shielding their income from tax. (Is that being too generous? I realize some of them are just scofflaws.)
Our solution? We aim to educate high-income earners about the tax advantages of a Defined Benefit Plan (pension) so they have access to legal and highly effective tax savings that also guarantees a pre-determined level of retirement income. Perhaps this alternative would ease the pressure on those who don’t pay tax because they feel they have no other choice. The compliance audits are coming; can we work together to help your clients get prepared?
Sources:
Are 87,000 New IRS Agents Coming? (Kiplinger)
IRS to Hire Nearly 20,000 New Staff (Reuters)
The Case for a Robust Attack on the Tax Gap (U.S. Department of the Treasury)
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