Mid-Year Report Reveals Key Tax Insights for Small Businesses

In a landscape where timely tax processing is crucial for financial planning, small business owners may find hope—and challenges—in the recent updates from the National Taxpayer Advocate, Erin M. Collins. On June 25, 2025, Collins released the Fiscal Year 2026 Objectives Report to Congress, which illuminates both successes and ongoing hurdles that could impact the upcoming filing season.

“The 2025 filing season was one of the most successful filing seasons in recent memory,” Collins noted, though with an air of caution regarding the future. Small businesses, many of which rely on timely tax refunds, should pay close attention to the implications detailed in the report.

The data suggests that the recent filing season has been relatively efficient, with the IRS receiving nearly 141 million individual income tax returns and processing about 138 million of them. Over 95% of these were filed electronically, and around 62% resulted in refunds. However, the report highlights troubling refund delays affecting specific groups, including identity theft victims—an issue that disproportionately impacts those who depend on refunds for essential living expenses.

As of the end of the filing season, approximately 387,000 identity theft victim assistance cases remained unresolved, with an average resolution time of nearly 20 months. “These delays disproportionately affect vulnerable populations dependent on their refunds,” Collins emphasized. Small business owners should be aware that changes or delays in the IRS’s capacity to address these issues could ripple through the tax landscape, affecting their operations.

Collins also underscored significant operational risks as the IRS moves toward the 2026 filing season. The IRS workforce has shrunk by approximately 26%, raising concerns about the agency’s ability to cope with the upcoming influx of returns, especially amidst anticipated tax law changes. Without a robust staffing model, intended improvements in taxpayer services and processing efficiency may wane. For small businesses, this could mean longer wait times for processing and refunds, a critical factor for those with tight cash flows.

On the technology front, Collins highlighted a pressing need for modernization. The IRS has established various “verticals” for technology projects aimed at improving taxpayer experience. Small businesses would greatly benefit from enhancements like fully functional online accounts where they can manage all tax-related transactions seamlessly, much like their experiences with banking services. Yet, the current functionality of IRS online accounts remains limited, posing a challenge for small business owners accustomed to the convenience of digital banking.

The report recommends prioritizing three key IT projects:

1. Improving online account functionality,
2. Automating the digitization process for paper returns and correspondence, and
3. Integrating disparate case management systems to improve customer service efficiency.

Collins urges the IRS to adopt a “digital first” approach, essential for maintaining taxpayer service standards. As small business owners increasingly manage their operations online, expecting similar capabilities from tax authorities seems reasonable.

Despite the potential advantages of technological upgrades and a successful filing season in 2025, small businesses should remain cautious. The report revealed that the IRS had suspended over 13 million returns for additional review, leading to detrimental refund delays. This situation may worsen if staffing cuts and technological hindrances are not urgently addressed.

Collins has made several recommendations to bolster the IRS’s ability to handle complex tax situations. The hope is that, with these changes, the IRS will be better equipped to provide timely assistance and resolution to small businesses navigating an often cumbersome tax landscape.

Collins’ vision for the IRS is clear, and her recommendations raise critical issues for small business owners. While the backdrop of a successful filing season brings optimism, the challenges posed require proactive workshops, greater advocacy for taxpayer rights, and efficient technology implementations to ensure smooth operations. As IRS processing times and advances remain uncertain, small business owners would do well to stay informed and prepared.

For an in-depth understanding, read the original report here.

Image Via IRS

This article, "Mid-Year Report Reveals Key Tax Insights for Small Businesses" was first published on Small Business Trends