The Tax Man Catches Up to Small Business Owners
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The Fiscal Times
March 11, 2014

What’s Happening: Federal and state tax collectors are cracking down on small business owners who aren’t paying their fair share of taxes, says a new Bloomberg Businessweek report. States are spending hundreds of millions of dollars on big data and other initiatives to beat the tax cheats and collect the billions they’re owed.

Florida, for example, is keeping car dealers honest by cross-referencing sales data with highway department records, and California and New York, as part of a new partnership, have each agreed to redirect tax refunds to the other if a business owner owes taxes in that state.

Related: Small Business Tax Cheats - A $122 Billion Problem

Why It Matters: Tax scofflaws owe $385 billion to the federal government and tens of billions to states, many of which are still struggling with budgets that were gutted during the recent recession. The largest portion of those debtors are small businesses and farms. That’s enough money to fund universal pre-K, double the size of both the Earned Income Tax Credit and the U.S. Air Force budget, and reduce the deficit by more than 25 percent, says Charles Kenny, a senior fellow at the Center for Global Development, who crunched the numbers for Bloomberg Businessweek.

What It Means for You: If you’re a small business owner, be sure your books are in order. States are starting to work with local agencies like liquor boards or other licensing agencies to prevent businesses with past-due taxes from getting or renewing necessary licenses. They’re also increasingly likely to send tax cheats to jail for their crimes; in Illinois, for example, judges are willing to put tax cheats behind bars.

The rest of us can only hope that these new extra-pressure efforts actually work. After all, enforcing existing tax laws sure beats raising existing tax rates.

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Life + Money Editor Beth Braverman covers all things personal finance. Formerly a senior reporter and social media editor at MONEY magazine, she’s also held gigs as a newspaper reporter and trade magazine editor.