Avoid Costly Tax Mistakes and Remain Compliant
The time is now for accountants to help their SMB clients get in front of increased business compliance considerations by implementing the right tax solution.
By putting a thoughtful tax strategy and system in place, SMBs can mitigate underpayment and incorrect calculations, reduce overpayments, lost sales, potential penalties, and improve overall tax efficiency within their organization. Moreover, by implementing a premium, end-to-end tax engine solution, SMBs can worry less about managing the complexities that come from government regulations and compliance.
In response to COVID-19 and the economic loss our country incurred throughout 2020, governments are likely to be auditing with a fine-tooth comb this year and companies must prepare accordingly. As many states look to increase indirect taxes to counteract these losses, with changes across both state and country lines, SMBs must carefully consider their approach to compliance.
In order to keep up with the pace of change, companies are relegated to piecemeal solutions, alongside manual calculations and data-keeping, which are not only time intensive, but also put companies at an increased risk of error and lost revenue. For every miscalculation, indirect taxes must be recalculated and remitted, otherwise, businesses face consequences like decreased sales and loss of overall customer trust.
As a trusted financial partner and advisor to clients, CPAs must socialize three key tenets with their clients:
1. Artificial Intelligence (AI) and Machine Learning (ML) are within reach
Sophisticated tax technologies are not limited to massive multi-national corporations. Many issues faced by SMBs can be addressed by utilizing AI and ML technology, which delivers more accurate and efficient information than those of outdated, traditional methods.
AI algorithms drive increased efficiency and accuracy with their ability to recognize behavior patterns, predict client needs, and return customized solutions. By tapping into the power of AI and ML, SMBs can distill seemingly large financial computations and make them manageable.
Reducing the time, money and effort required across multiple departments to maintain compliance, these technologies enable financial and other executives to increase focus on higher-value business operations. Today, there are numerous premium, affordable tax solutions SMBs and their accountants should explore.
2. Cloud-based solutions are the key to compliance
Manual data entry and manipulation are exceedingly time consuming and at risk of human error. The increase in online sales during the pandemic-driven stay-at-home orders exacerbated the mountain of data that needs to be distilled and interpreted.
Considering each state publishes their own sales tax rates—and those rates can change monthly—SMBs need a point-of-sale system that calculates applicable taxes in real time. With cloud-based tax and accounting software, these calculations happen automatically and ensure compliance. As such, SMBs can keep up with each jurisdiction’s tax nuances, including around holidays with the biggest tax implications, such as Memorial Day or Black Friday.
3. Anticipate and prepare for increased tax enforcement
Closing the tax gap––the delta between the amount of tax money that is paid each year and the amount of tax money that should be paid––has always topped the government’s agenda, but never more so than today. The unanticipated costs associated with the pandemic have resulted in unprecedented civic budget shortfalls across the board, with some cities having to dip into their reserve funds to stay afloat.
It is widely believed that states and municipalities will be increasing tax oversight and enforcement to recoup funds lost as a result of COVID-19’s impacts. CPAs should counsel SMBs, no matter where they are headquartered, about the increased audits that are forthcoming and set aside funds in preparation for these actions. Determining how much money to reserve is key and SMBs that have instituted automated tax systems will likely have less potential exposure compared to those SMBs relying on manual calculations and data keeping.
As states reopen and budgets are further impacted, we should expect government auditors to aggressively pursue businesses that are non-compliant. For CPAs and their SMB clients, tackling these issues early before costly mistakes are made is key.
Most importantly, the right tax software solution is out there and available for small business owners today. Not only will they get the comfort of knowing these challenging tax regulations and calculations are being handled correctly, but they’ll be able to focus on driving their company growth instead.