Tax Compliance Is Not Optional: Protect Your Business Before the IRS Comes Calling

Tax compliance may feel painful, annoying, and overwhelming — but it is not optional.

In this episode of How to Win Big at Business, Joe DiChiara speaks directly to self-employed professionals and small business owners who are frustrated by the growing burden of invoices, receipts, payroll records, sales tax rules, tax filings, and government compliance.

Joe opens with the voice of the frustrated business owner: “Why do I have to spend all this time submitting information? What am I paying you for?” Then he explains the hard truth: when you start a business, you also accept the responsibility to keep records, substantiate deductions, follow payroll rules, understand sales tax exposure, and protect yourself before the IRS or state government comes knocking.

Joe breaks down why tax compliance has become a major part of running any business, no matter how small. He discusses sales tax complexity, payroll documentation, independent contractor issues, economic nexus, e-commerce rules, state tax enforcement, and the growing possibility of more automated IRS audits.

He also shares real audit stories involving a trucking business and a film project where taxpayers were forced to fax in piles of records — and where deductions were challenged because the government questioned whether they were business-related.

The message is clear: business owners can no longer afford to play compliance roulette.

If you are self-employed, you need organized electronic records, a clear naming convention, proper invoices, payroll documentation, sales tax awareness, and a system for capturing receipts before problems happen.

Because when it comes to tax compliance, waiting can be expensive.

If you’re a self-employed professional trying to build a real business, this podcast was created for you.
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Thanks for listening!

If you want fewer headaches, fewer IRS surprises, and more smart systems running your business (so YOU don’t have to), let’s talk.

Book a strategy call: www.timewithjoe.com

Because running a business shouldn’t feel like wrestling an octopus… alone. 

Also check out:
www.Bedrock360BusinessSolutions.com (Complete Coverage)

www.Bedrock360TaxSolutions.com (Tax Gaurd 365) 

www.Bedrock360BusinessTraining.com (Courses)

Transcript

SPEAKER_00 0:05

So please explain to me why I have to spend all this time submitting this information to you. I feel like I'm spending more time on my accounting and taxes than if I just did it myself. This is getting ridiculous. Now you're telling me that I'm gonna have to save every invoice and file it in some order where they can be easily accessed because the IRS might ask for them. I've been doing this for over 20 years and I've never had a problem with the IRS. And not for nothing, but since you've taken over, now I also have to keep detailed records of my payroll and sales tax. Oh my God, this is this is torture. What am I paying you for, exactly? Hi, my name is Joe DeCara, and this is how to win big at business. I'm a CPA for over 40 years, also a lifelong entrepreneur, and I've created this podcast for self-employed professionals. And if you could relate to what I opened with the pain and suffering of having to adhere to tax compliance and this moving target and never-changing rules and regulations, if that's you, I understand. I understand. Because believe it or not, I'm subject to the same exact rules and regulations. And I don't like it. I don't like having to take all those invoices from my emails. And then let's be honest, it's like a garbage bag. I'm getting invoices from emails, I'm getting invoices through PayPal, I'm getting paper invoices. It's a job, it's a job and a half. My payroll, I have to keep detailed records for all our employees, W4, I9s, W8BEN for any foreign workers, all so that I don't have to answer to the IRS or the state government. It's not just the IRS. Sales tax, that's something that I'm not involved with, thank God. As a CPA, we have a service. And as of today, which is June 11th, 2026, professional services aren't subject to sales tax. Now, in my time, I've seen that change. I've seen sometimes it's local, it's not even statewide. I remember when haircuts were not subject to sales tax. And then all of a sudden, if you had a barber shop or a or a beauty salon in New York City, now you had to start charging sales tax. Same thing with cleaning and maintain. When I started in this business, cleaning and maintenance of office buildings and whatever was not subject to sales tax. All of a sudden, it is subject. And let me tell you something, sales tax is the most complicated tax ever created. And the truth is, whether you're in New York State, California, or any other state, those states are hungry for sales tax revenue. And here's the kicker because it's so complicated, chances are if you're in a business like construction, retail, there's so many rules and regulations. And again, they change. They change constantly. If you're in retail, let's say you're in a retail clothing business, there's one set of rules. Forget about all the rules for exempt organizations and exempt goods and services. That's another thing. Oh, and then you want to get into interstate taxes. So the next big thing that's coming is e-commerce. So e-commerce, if you have an so, and then e-commerce, you have different categories because so let's say you have an Amazon store. Well, Amazon is what they call a facilitator. Amazon is going to collect and pay the sales tax for you. But let's say you do sales outside of Amazon, and God forbid you're doing sales outside of your state. Well, now they have this new Wayfare rule where Wayfair, if you're not familiar with Wayfair, they sell home furniture and decorations and stuff like that. They're a big company. Well, one of the states, I forget which one, it might have been South Carolina. Doesn't matter. They took them to court, it went all the way to the Supreme Court, and the Supreme Court ruled that now there's economic nexus. It used to only be physical nexus, which meant you had to have a physical presence in a state to have to be required to be a sales tax fan. Now it's economic nexus. And guess what? Every state has their own economic nexus roles. So for instance, I believe as of today, if you're, let's say, in California and you do over $100,000 worth of business in the state of New York, now these are taxable transactions. And again, you have to check the roles for that state because what's taxable in one state may or may not be taxable in another state. Tax compliance has become a major part of running any business. It doesn't matter how big or how small you are. Now, for as long as I've been doing this, which is over four decades, the truth is that most small businesses like to play the roulette game, meaning I'll worry about it when and if I get caught. And the other truth is that the government has had their hands tied in a lot of ways, technology-wise, manpower-wise. Now, at the state level, because they're so hungry for the sales tax revenue, they've been auditing and collecting hundreds of millions of dollars in unpaid sales taxes forever. So sales tax has always been an issue. In fact, it's such a big issue that I do not target industries that are subject to sales tax. I stay away from contractors, construction, because construction sales tax laws are extremely complicated. And all these small construction companies that I've had as clients, there's always a battle between how much they want to pay in sales tax, as if they have a choice. But now what's changing? What's going to change? Well, number one, COVID, there was a whole new audit approach that was already implemented. It was already implemented by the IRS. And I've talked about this in other podcasts, but I'm going to talk about it again because this is an issue that in the next, in the near future, and it could be a year, it could be two years from now, but now is the time to start preparing for this, folks. It's the time to actually start adhering to what you agreed to when you decided to become a business owner. And I'll tell you exactly what you agreed to. Because a lot of people don't even know. A lot of people don't know. We're just signing documents and trusting our advisor. Hopefully, you're not one of those people that are trying to do this without a CPA, without an enrolled agent, without a knowledgeable tax advisor. Because to be honest with you, I have to tell you, it's a big job just for me to stay on top of all the rules and regulations. So the industries I stay away from. It doesn't mean that I don't accept clients in these industries. We just don't hold ourselves out there as being experts in those industries. My target avatar for bedrock 360 tax solutions are the self-employed professionals that don't have sales tax, don't have big payrolls. If there's any payroll, it's usually just the owner. And the ones that I stay away from, like I said, is construction, retail, and definitely anyone in the restaurant business. You want to talk about crazy payroll, it's insane. When you start taking into account tips, and now with the new rule where X amount of tips are not taxable, it just is a whole nother level of compliance. So what's changing? Number one, when before COVID hit, I had a couple of audits, IRS audits that involved clients that they weren't clients at the time. They came to me because I do specialize in handling tax problems. And that's another area that I target. Anybody with tax problems, I have a long history of solving very complicated tax problems, including criminal investigations, offers and compromise, tax audits. You give me an IRS or state tax problem, and I guarantee you I can figure out what the solution is. If there is a solution, sometimes there's no solution. Sometimes the solution is installment agreement, offering compromise if that's appropriate. But so what I came across were number one, a trucking company. Now, this woman had inherited her husband's trucking company. I don't know if he got sick or passed away, but she wound up having to run a pretty good-sized trucking company. They did a couple of million dollars in sales. Luckily, she was an experienced office worker, so she knew how to keep record. She got audited. She got audited because she had an idiot accountant. So what happened was she was with this one, the her husband was with this one accountant for like over 20, 25 years. The guy retired, let his daughter take over, who wasn't a CPA, she wasn't an enrolled agent. From what I understand, the way she did the return, I don't even know if she worked in the office because she did the return in a way that when I saw the return, I would have said, but if this return doesn't get audited, I would be surprised. So the woman gets audited, the business gets audited, and this is this is what was shocking to me. They didn't schedule a meeting, which is how it's normally conducted. What the agent asked for was for her to fax in all of the business receipts. Fax them in. Now she had literally thousands of documents. It must have cost her a lot of time, a lot of money, just to fax everything. So she does that, and let me tell you, she had impeccable records. She faxed him all the payroll info, all the fuel info, all the insurance. And shockingly, what this agent did, and I think he was out of his mind because what he did was he disallowed all of her deductions because what he claimed was she didn't show that they were business related, which was ridiculous. It was ridiculous. Now, long story short, I was able to get everything uh removed. They had hit her with a $50,000 negligence penalty. She was looking at over $200,000 in taxes. Now, that was just for one year. And what usually happens when there's a big when there's a big balance due, they're gonna open up more years. So it wasn't over. It wasn't over. This audit devastated. She was an office worker making $30,000 a year, she would have been better off just closing the business. So and I never got into that with her. My job was to just handle the audit any way I could. So what I did was when I saw how he did this. Now, obviously, when you spend $80,000 in fuel, $60,000 for insurance, you have W-2 wages of $250,000. That's not a hobby. So obviously, these expenses were business. Now, what happened was when I got it, the statute on appealing, or it was it was even past being able to appeal. We were at the point where she would have to file a petition with the United States tax court to fight the IRS. And I've done that in the past. And what I've learned is one, and you don't have to be an attorney, you don't have to be certified by the tax court to file a petition. Anybody could file a petition. And then what my plan was is if it actually went that far, I would have gone to court with her and explained to her what to say, what to do. But it never goes that far. My experience is every time you file a petition, the IRS gives you more time to work out a deal. Okay. So anyway, time was running out. I threatened, we had like a week left. I had redone the books because they weren't done correctly. I redunded the entire year, presented the all the financials, and what I told the agents that were in charge now, because the original guy was no longer there. Either he retired or got fired, or something happened, and thank God, because this guy was insane. And so I told him what I was gonna do. I said, if you don't allow all the expenses and wipe out the whole balance, do I'm gonna file a petition with the tax court, and then you're gonna have to explain how this agent claimed that none of these were business expenses. In other words, they were gonna look like fools. They were gonna look like fools in front of the court. Anyway, the point was the audit was done all electronically by facts. A few months later, I got another one. It was a couple that had produced a film, the film was for profit, obviously. They had an opening night, they documented everything again, all the documents, same thing. They had to fax in all the all their receipts. Again, the agent said they weren't business related, and with that one, all it took was writing a letter saying that section 162 of the Internal Revenue Code that is it explains what a business expense is, how it's supposed to be documented, and that it has to be ordinary and necessary. So just a simple letter wiped that out. They got a letter saying they re-examined the audit and there's no tax due. Then what happened was COVID. So all that audit stuff was put on hold. It was all to do for the IRS to be able to answer the phones. Now they had to go remote just like everyone else. It was it was total chaos, just like everyone else in the country, in the world at that time. When the US government decided to start printing money and they passed all these laws, what they snuck in there was Joe Biden snuck in there that they were gonna hire 80,000 IRS agents. They were gonna totally revamp and staff the IRS. They passed some other rules with 1099s, and they also passed a role, I believe, where banks now had to give the IRS information that they never had to give them before. I believe what they're supposed to do now is they're supposed to supply the IRS with anybody that has a business account. Now, why is that important? Because the truth is there's millions of businesses that open up, let's say, an LLC or a corporation, they get a federal tax ID number, they open up a bank account, so now they can do business, and they actually either never file a return or file an inactive return. And the IRS has no way of knowing if they're actually in business. Fast forward, presidential election, Donald Trump gets elected. Now it's no secret about Donald Trump's history with the IRS. They've been auditing him for decades, for decades. And I believe that he actually filed a lawsuit against the IRS. Donald Trump brings in Elon Musk with that, I forget the name of the uh government agency, but Elon Musk's job was to eliminate government waste. And Donald Trump probably gave him his stamp of approval. He said, let's get rid of as many people as we can at the IRS. And 25. Not only didn't they hire the 80,000 agents whose sole purpose really was to be auditing people and collections, even though the IRS would never admit that. That's what they were actually going to do. So they didn't hire 80,000 people and they actually lost about 25,000 people. So they didn't have enough people to begin with, then they lost 25,000 people. But here's the thing: Donald Trump's term is gonna be up. Once Donald Trump leaves office, the IRS is gonna get staffed again, they're gonna be implementing all the new technologies, computer systems, and guess what? They're gonna be using AI. And now they're using fax machines, believe it or not. And so here's what's gonna happen. Just like what happened before COVID with those two audits, people are gonna be getting audited, and it's gonna be easier for them to select the people for audits. If I'm right and the banks are giving them, they're not giving them access. The IRS actually wanted to know any transactions that were being consummated that were over $10,000. And the banks they flipped out because that was going to cost the banks a lot of money. So I believe that they compromised on the banks giving them the list of all the businesses that have bank accounts. All the IRS has to do is match up those federal ID numbers with the bank accounts and see who's actually filing returns. That's one thing. And it goes on and on. Okay, I want to cut this short because we're going with. Way too long on this. It's a big issue, but let me explain to you what you agreed to when you started your business. Once you apply for a federal ID number, actually, once you start a business, whether you or not, the IRS requires you to keep record. They require you to substantiate every bill that you're paying. You're required to substantiate every deduction on your tax return. Now there's something called the de minimist rule where anything under $75, you don't necessarily need a receipt, but you do need to record it. And you could record that a number of ways. You can have a petty cash journal, but you got to keep records. It's not an option. A lot of business owners believe that it's an option. That's one thing. Now, on the payroll side, there's a whole issue. It's and this has been an issue since before even started in accounting. There's a whole big issue between if somebody's an employee or an independent contract. Now there are independent contractors out, but they have to truly be independent. So if you have somebody that's working only for you full-time, they're probably not an independent contract. Now, the business owners have been doing this for forever and getting away with it. And my prediction, if it comes true, tens of millions of business owners are gonna be stuck, they're gonna have big problems. Because let's face it, politicians don't get elected when they raise taxes. But what they do know is if they just enforce the current laws, they're not raising taxes, they're collecting legitimate taxes that are due. And it's going to be at the federal level, at the state level, and at the local level. Because another thing that's happened is the sharing of information. Believe it or not, the governments, the state, local, and federal governments are fragmented. Their systems don't talk to each other. Anything that was cross-referenced would have to be set up beforehand. So for instance, if the IRS audit somebody, and this is why that trucking client wasn't even close to what she would have owed. If the IRS audits somebody and there's a change in taxable income, they let the state know. So that woman, she was in New York State, so the 200,000 in income taxes she owed, she probably would have owed another 80,000 plus interest and penalties to New York State. It's not like that anymore. They're connected because just like everyone else, the technology cost has gone down. It's gone down to where it's negligible. So this is all we're pretty much in the George Orwell 1984 stage where the machines are running everything. There's very little human interaction, and that reduces the cost of collection. So the solution is you have to start keeping records. It's painful, but it's not that difficult. What you do, this is how you do it. Number one, you have to create a naming convention. You want electronic records. You don't want paper records. A lot of people are still paper, paper centric. You need to get electronic. If you get paper receipts, which people still do, you're going to learn how to scan them in and create a proper naming convention. What's a naming convention? Something that's going to list the vendor, the date, maybe the category, so that it could be found later. You're going to have a good filing system. Think of a physical filing system. Your electronic filing system should be equivalent, okay? Gathering the info. Like I said at the beginning, you're probably getting emails, their uh invoices, receipts are in your PayPal account, whatever platform you're using. A lot of people are using electronic payment systems, Venmo. If you're paying independent contractors, make sure you get an invoice so you could back that up. Otherwise, the IRS could actually say, This individual, you should have actually been withholding taxes on them. So not only will they disallow the deduction, they might hit you for backup withholding. Okay. Another and another thing is there's a multitude of apps that you can download on your phone that'll easily take a picture of your receipt. A lot of these sync with all the accounting programs. And last but not least, with this is what I'm doing. I'm gonna set up a project on Claude just to capture all of my receipts. So you could use Claude, you can use OpenAI, you can use Gemini, Copilot. It doesn't matter. Now, the good thing about a program like Claude is all I got to do is upload the receipt and it'll categorize it for me. It'll categorize it by a date, a vendor, even accounting category. Okay. So that's my story, folks. Protect yourself. If you ever want to reach out to me, if you ever have questions, just go to timewithjoe.com, be happy to talk to you about your business. And God bless, and I'll see you in the next episode. This was episode number 28 already. 28 of how to how to win big at business. If you like this episode, follow me. Uh give me a rating on whatever platform you're listening to. And the best is yet to come. Thank you.