Many countries are facing tax shortfalls because of the COVID-19 pandemic. These massive budgetary restraints appeared at the global, federal, state, and local levels. Governments have many creative tools for making up for these losses, such as sales tax, VAT, fuel tax, and other indirect taxes.
For companies, calculating and collecting indirect taxes and ensuring compliance can become a major headache. This is especially true for small-to-medium-sized businesses (SMBs).
But utilizing automation, businesses can combine their in-house knowledge and resources with the power of technology. When you automate tax reporting, indirect tax reporting becomes far easier. This article will walk through the benefits of tax automation and how it can save you time and money.
Why you should automate tax reporting
Manually calculating your taxes is not only slow, but it can be a big problem because it can also lead to errors. Unless they’re an accounting firm, most small businesses are probably not run by tax experts. Automating your tax processing will enable you to improve accuracy and better assess your tax liabilities.
Work smarter and improve productivity
When a small company is charged with keeping track of forever-changing tax regulations, it can destroy productivity. Tax automation can help companies work smarter, not harder.
Stay on top of tax changes
Today, more than 11,000 jurisdictions in the U.S. create tax rules that can potentially impact your small business. On top of this, tax codes are constantly changing. For example, the regulations regarding reporting cryptocurrencies seem to change every year.
Keeping up can seem like an impossible task. When your small business is already faced with ensuring continuous cash flows, automating how your taxes are tracked can help you keep up with regulations as they change and prevent you from missing out on any new information.
Keep an eye on tax compliance
One area of particular importance is compliance returns. Compliance returns can potentially be fraught with errors, leading to audits. Automation minimizes errors and improves your filing accuracy. Some experts believe that government auditors will scrutinize filings for errors more closely to maximize revenue this year.
Online fraud prevention tips often include monitoring your expenses, but monitoring your tax compliance can also mitigate fraud.
Compliance is also important when it comes to reporting sales tax returns. Recently, many states have been considering accelerating the collection of sales taxes. As a business, remitting sales tax can quickly become an overwhelming task without automation.
Manage myriad tax requirements
Automation isn’t just about extra scrutiny; it is also about tracking all of the different requirements that are out there. This can be from changing requirements to different regulations. For example, you may be taxed on income, property, and capital gains. Taxes vary across jurisdictions, too, so keeping track of these differences can be especially difficult. Automation can help keep track of all of these requirements without having an in-house specialist for the job.
Eliminate errors to save money and improve your filing accuracy
Besides being more productive, utilizing automated tax technology can save you a lot of money by minimizing and eliminating errors.
Keep track of global tax requirements in real-time
The digital economy means that many businesses don’t just do business in one place. Companies can manage freelance writers, fulfillment centers, and data centers across the globe. As a result, all of these employees, assets, and business ventures can accrue various tax liabilities.
For example, you may be subject to local taxes, foreign taxes, and even municipal taxes depending on where you do business. Failing to pay municipal taxes on time can lead to foreclosure on properties you own, and missing out on foreign taxes can lead to your business losing its ability to operate in other countries.
Error reduction with automation saves time and money
One of the most important things you can do as a business leader is to minimize your expenses. Tax errors can be costly, so it’s best to avoid them when and if you can. They can also be fatal to your business if they don’t get remediated. One way errors can crop up is when transposing figures from sales data to tax data. Automating compliance avoids these issues and helps reduce your possible points of error.
Consider local taxes with shipping automatically
If you manage an e-commerce platform, chances are you’ve had to calculate taxes for where your products are being shipped to. Shipping addresses are frequently used to calculate indirect taxes on a given transaction. When you get a bad address, it can be more than just a shipping problem – it can also make it difficult to calculate what taxes are owed.
When utilizing technology-backed solutions, you can use the cloud to validate and update addresses. These types of database solutions enable you to make corrections on the fly and help ensure your small business collects all the right taxes and reports them just the same.
Improve tax policy consistency
Your audit risk increases exponentially when your taxes are inconsistent and inaccurate.
Underreporting sales tax is one of the most common grounds small businesses get audited. Today, the main reason why companies aren’t audited as often is simply because of the cost involved. Some businesses save additional funds to mitigate audit risk.
Either way, underreporting or saving in case of an audit, your business is using its assets inconsistently when they could be put to better use.
Automation helps avoid this by ensuring that taxes are accurate and consistent, regardless of the regulations involved.
Build a better business using technology
Automation isn’t just about how you report your taxes; it can also help you generate reports and plan for future tax obligations.
Tax Report Generation
When you get audited, having information to back up your filed taxes is key. Audits are costly, time-consuming, and can result in criminal penalties. Not only that, but tax audits can also damage the reputation of your company.
Rather than waste your time battling the tax authorities, consider using automation to build reports that allow you to respond to an audit with just the click of a mouse. Automated reports allow you to accurately reflect how you collected taxes and how they were paid.
Plan for future tax obligations
As your business evolves, technology and tax automation can give you the right toolkit to help you plan your future tax obligations. Bringing on specialized staff or acquiring new physical infrastructure can eat up time and decrease your flexibility. Cloud-based tools can automate planning, minimize capital expenditures and give you direct access to changing regulations. This type of planning can be a huge plus because it will allow you to respond to changes and better allocate your resources.
As the tax environment gets more complex, small and medium-sized businesses face a double challenge – they need to ensure they are accurately calculating, collecting, and reporting taxes while also staying compliant with all relevant regulations and laws. Automating tax processes can be useful for managing business taxes, reducing errors, improving reporting, and ensuring compliance.