How Higher Interest Rates Could Impact Your Small Business

For small business owners, higher interest rates could mean difficulty borrowing money and more. 

Tom Bayer, a CPA with Sikich LLP, says two major issues impacting businesses and consumers alike are interest rates and changes within the IRS. He says the Federal Reserve’s rate increase is largely connected to stubborn inflation combined with rising oil prices. These contribute significantly to higher costs according to Bayer. 

Bayer says because higher interest rates make borrowing more expensive, businesses may become more cautious about investing, particularly when the cost of capital makes it harder to achieve the returns they are seeking. 

In addition, Bayer says the IRS received significant funding and invested in additional employees and technology under the Biden administration, but some of that funding was later reduced and the IRS workforce declined under president Donald Trump. While fewer employees could mean fewer traditional audits, Baer says taxpayers should not assume the IRS is becoming less capable of identifying problems. 

Bayer says the IRS continues to invest in systems that can automatically analyze tax forms, identify discrepancies and send notices to taxpayers. He warns that this makes accurate recordkeeping and documentation especially important, particularly for expenses and deductions that taxpayers report themselves. “Technology will replace some of what agents did in the past.”