Why the IRS Is Targeting More Small Business Owners in 2025 — And What You Can Do Now to Stay Off Their Radar
By Filing Express Contributors – Informed by real-world insight from working with America’s top tax strategists
In 2025, the IRS is on a mission—and small business owners are officially in the crosshairs.
After years of flying under the radar, entrepreneurs, solopreneurs, and LLCs are being scrutinized with a sharper lens than ever before. With the Inflation Reduction Act allocating $80 billion to the IRS (a move that stirred plenty of headlines), we’re now seeing the trickle-down effect: increased audits, more automated flags, and a renewed push to uncover underreported income—especially among small businesses.
But here’s the twist: this isn’t about fear. It’s about foresight. And at Filing Express, our mission is to help you stay ahead of the curve with clarity, not chaos.
Why the Shift?
Let’s break down why the IRS is paying extra attention:
- Rise of Self-Employment & Digital Hustles:
With over 5 million new business applications in 2024 alone, side hustles have become main hustles. The IRS is catching up. - Underreported Income via Cash Apps & Payment Platforms:
Venmo, Cash App, Stripe—if you’re getting paid, the IRS wants to know. The controversial $600 1099-K threshold might have been delayed (again), but make no mistake: those platforms are still reporting, and the IRS is watching. - S Corp Abuse and ‘Fake Payrolls’:
S Corporations offer great tax savings—when done right. But too many entrepreneurs are skipping payroll or lowballing their reasonable salary to dodge self-employment taxes. That’s a red flag now.
What to Do (Without Losing Your Mind)
At Filing Express, we’re seeing a new trend: savvy business owners are getting proactive about tax strategy. Here’s how to join them:
1. Treat Your Business Like a Business
- Register correctly (LLC, S Corp, etc.) based on your income and growth goals.
- Separate business and personal finances. Yes, even if it’s “just a side hustle.”
2. Track Everything — Don’t Let the IRS Guess
- Use tools like QuickBooks, Wave, or Xero to keep your books clean.
- Keep a digital paper trail: receipts, invoices, contracts.
3. Know What’s Deductible (and What’s Not)
- Home office, travel, software, education—it all adds up.
- But deducting your dog’s grooming “because it helps your mental health”? That’s a stretch, friend.
4. Hire a Real Advisor, Not Just a Tax Preparer
- The Filing Express team partners with entrepreneurs to build year-round tax strategies.
- If your tax person only calls you in April, you’re leaving money on the table (and inviting risk).
The Bottom Line
2025 isn’t the year to wing it.
The IRS isn’t “coming for you,” but it is coming for those who haven’t taken the time to tighten up their business practices. And the truth is, that’s good news—it means the rules are getting clearer, and smart business owners can use them to their advantage.
The smartest entrepreneurs don’t react to the IRS. They prepare.
And with a platform like Filing Express in your corner, it’s easier than ever to stay compliant and keep more of what you earn.
Want a second set of eyes on your setup?
Book a quick consult with a Filing Express advisor and learn what the IRS might see when they look at you.
Why the IRS Is Targeting More Small Business Owners in 2025 — And What You Can Do Now to Stay Off Their Radar
By Filing Express Contributors – Inspired by insights from America’s top tax minds like Tyler McBroom, Karlton Dennis, and Carter Cofield
The Warning Signs Are Clear: It’s Audit Season for the Underdog
If you’re a small business owner, 2025 is your wake-up call.
The IRS is doubling down on enforcement—and this time, it’s not just Fortune 500s or celebrity tax evaders under the microscope. It’s everyday entrepreneurs, digital creators, real estate pros, consultants, Amazon sellers, and solopreneurs running six-figure businesses from their laptops.
Why the sudden shift?
Let’s look at what’s brewing beneath the surface—and what you need to do now to avoid becoming part of a growing audit statistic.
The IRS Got a Major Budget Boost — And You’re in the ROI Plan
In 2022, the Inflation Reduction Act approved nearly $80 billion in IRS funding over the next decade—roughly $45 billion of which is earmarked specifically for enforcement. As of 2025, that rollout is officially underway.
While big corporations and ultra-high-net-worth individuals are on the hit list, the IRS also knows where the low-hanging fruit is: small businesses.
According to the Treasury Inspector General, small businesses represent over 70% of the U.S. tax gap—the difference between taxes owed and taxes actually paid. In plain terms: the government believes small business owners are unintentionally (or in some cases intentionally) underpaying billions in taxes.
So, Who’s Most at Risk in 2025?
We’ve analyzed IRS enforcement updates, tax law trends, and our own client cases here at Filing Express. Here’s who’s under the most scrutiny this year:
Solo LLCs and S Corps
Especially if you’re not taking a reasonable salary or your distributions outweigh your payroll. The IRS has clearly stated it’s focusing on S Corp abuse in 2025.
1099 Contractors & Digital Earners
If you receive income through PayPal, Stripe, Venmo, Zelle, or Etsy—even with the $600 1099-K delay—you’re still on the grid. These platforms are sharing your data, even if a form isn’t issued.
Service-Based Business Owners Who Mix Personal & Business
Using a personal card for business travel? Running all expenses through one account? The IRS is using new AI-driven tools to flag inconsistencies in deductions vs. income patterns.
Entrepreneurs With Big Deductions and Low Profit Margins
If you made $40,000 but wrote off $38,000, expect some questions. Deductions are valuable—but they must be legit and defensible.
What the Smartest Business Owners Are Doing Differently in 2025
At Filing Express, we’ve helped thousands of small business owners build sustainable tax strategies that don’t just protect them—they build wealth, too. The most successful clients share one trait: they don’t wait until tax season to get strategic.
Here’s how to join them:
1. Make Your Entity Work for You, Not Against You
Whether you’re still running under a DBA or you jumped the gun on forming an S Corp, now is the time to re-evaluate your structure.
- LLCs offer flexibility but no tax benefit unless you elect S Corp status.
- S Corps can save you thousands in self-employment taxes only if your profit justifies it and you run proper payroll.
- C Corps are trending again for specific business models due to the flat 21% tax rate and growth potential, but they’re not for everyone.
Pro Tip: Don’t pick an entity just because someone on YouTube said it’s smart. Talk to someone who understands your numbers.
2. Don’t Rely on 1099s — Report All Income, Period
Many entrepreneurs think, “If I didn’t get a 1099, I don’t need to report it.”
False.
All income—reported or not—is taxable. And with the IRS increasing its access to third-party data sources (payment processors, gig platforms, even social media accounts), underreporting is becoming easier to catch—and penalize.
3. Automate Your Bookkeeping or Hire Someone Who Can
We get it—bookkeeping is boring. But it’s your first line of defense in an audit.
Use tools like:
- QuickBooks Online for robust tracking and tax prep
- Wave for a free but functional startup-friendly option
- Bench or Pilot if you want done-for-you bookkeeping with reports and tax filing
The rule of thumb? If you can’t explain your expenses in 5 minutes, you’re doing it wrong.
4. Maximize the Right Deductions Without Crossing the Line
The IRS isn’t against deductions—they’re part of the tax code for a reason. The problem arises when business owners stretch “business use” too far.
Here’s what’s fair game:
- Business travel, mileage, meals (50%)
- Software and SaaS subscriptions
- Education directly related to your industry
- Home office deductions (with square footage documentation)
And here’s what’s not:
- Your cousin’s wedding (even if you “networked” there)
- A daily coffee from Starbucks, unless you meet clients there regularly
- Personal clothing, unless it’s branded or required (like a uniform)
5. Start Thinking Like a CFO, Not Just a Founder
We love helping business owners make the shift from reactive to strategic. That means:
- Quarterly tax planning
- Proactive retirement contributions
- Using your business to fund investments
- Building business credit to scale wisely
You don’t need a finance degree—you need a simple plan, expert support, and the willingness to treat your business like the wealth-building machine it can be.
In Summary: Don’t Be Afraid—Be Ahead
The IRS isn’t trying to crush small businesses.
But it is making up for years of under-enforcement, and 2025 is the year things are getting real.
Your response shouldn’t be fear—it should be precision.
With Filing Express, you don’t have to become a tax expert overnight. We’ve built our services to simplify this process for founders who want peace of mind and powerful results.
Ready to take control before the IRS takes notice?
Let’s review your current setup and identify your biggest risks—and biggest savings.
Book a strategy session with Filing Express today.» CLICK HERE TO BOOK A CALL
