What must you be doing in the meantime?
When news that the Biden Administration is proposing that the Internal Revenue Service (IRS) monitor bank accounts, many Americans raised eyebrows. No one is happy when the Taxman is watching their money flows; it’s the kind of thing that leaves you exposed. Several organizations, including the credit unions, are rejecting this proposal, urging Congress to reject it. If passed, the resolution would see the IRS monitoring bank accounts with inflows and outflows of more than $600. This virtually places almost everyone with a bank account under surveillance.
Why monitor bank accounts?
This decision was reached after the treasury department saw the need to revamp tax collection. Janet Yellen, the Secretary of the Treasury Department, has been on record defending this proposal. She argues that many wealthy individuals use several means to avoid paying the taxes they owe. She also said that, in the end, the poor workers end up ‘funding the government’ by themselves since their taxes are withheld by their employers. As such, while employees cannot escape paying taxes, wealthy individuals with several means of making money avoid paying their fair share. Monitoring their bank accounts is believed to help the IRS have everyone’s income on record.
Will organizations rejecting this succeed?
American banks and other financial institutions are obliged to obey resolutions that Congress passes. Regarding this, they are holding their breaths, hoping for it to be thrown away. If passed, it would increase their workload – another layer of reporting duties is strictly undesirable and could cost more if it requires them to hire more staff. Nevertheless, there is still hope that this proposal will be rejected or tweaked to increase the number of bank accounts that will not be monitored.
Arguments against this also include the fact that individuals and businesses will lose their financial privacy. Some call it “snooping” on Americans in the most daring way. As the arguments fly by, the question raised is, will the Biden Administration relent on their wish? In the wake of a barrage of criticisms of this proposal, the Newsweek reported that talks around raising the reporting threshold from a minimum of $600 to $10,000 have been reported. However, the treasury department remains adamant that a smaller threshold will help catch big income earners because, with such a small threshold, it will be difficult for them to move money between different smaller accounts. Only time will tell how this will fold.
What should taxpayers be doing now?
This is the most crucial question to be asking right now. The treasury department is not going to let this go. If anything, they may reach a compromise but granted, the phase of IRS surveillance will be upon us soon. By setting such a low reporting threshold, almost everyone’s bank account will be monitored. Therefore, the only favor you could do for yourself is to prepare adequately. How? You could be asking.
Well, the truth is monitoring your accounts is so that they can compare what you report on your tax return with what went through your bank account. Therefore, the best way to prepare yourself is to spruce up your income recording and reporting systems. This is very important for small business owners who have been playing hide and seek with income reporting standards. This is the time to formalize everything. Hire bookkeepers and accountants to track, report, and account for every dollar that goes through your business account.
As for individual taxpayers, most of you are employees. All the money you get is paid from work via your salary deposit. Already, your employer will have withheld your taxes, which makes it easier on your part. However, if you have a side hustle that gives you extra income, you need to also spruce up your reporting standards. Ensure that your tax return this upcoming tax season accounts for every cent. If you manage to do that, even if they monitor your account, they will find exactly what you report in your tax return.
Many people struggle to compile accurate tax returns. This is something you must avoid by all means this time. To be safe, talk to me for tax preparation services. I will help you. This invitation is also extended to small businesses, which I can help with their bookkeeping and accounting services. You need this now more than ever. Contact me now for help.
People have also asked the following questions
- How does IRS get bank account information?
The IRS gets your account information from your tax return or using Information statements about you, such as Form W-2, under your Social Security Number. They can also use third parties like Social Security Administration.
- How does the IRS know your bank account number?
The IRS knows your bank account number in many ways. They can know from your return – when you choose direct deposit as a refund option. Also, if you have a bank account that pays you interest, they report that to the IRS. If you are self-employed, your customers report all accounts they send money to, which will include yours.
- How can I legally hide money from the IRS?
Trusts are the widely used method of legally ‘hiding’ money from the IRS. They result in low taxes being paid. However, this option is usually used by wealthy families.
- What happens if the IRS has the wrong account number?
If the IRS has the wrong number, it will delay your receiving of the tax refund due to you until you provide the correct account number.
- How do I correct my account number with the IRS?
To change your banking information, call the IRS at 800-829-1040 if you have filed your return. If you have not yet filed your return or it has been rejected, go to the IRS website, and start the e-filing process. Choose how you want to file, which is Direct Deposit, in this case. Some prompts will pop up requiring you to enter your routing number and account number. Do so and re-enter the same information to confirm.
