Tax season is upon us. Businesses are gathering all expenses and deductions to file the most important financial forms of the year. Filing returns can come with havoc and headaches for many finance departments. Why? There’s a truth that one small miscalculation can lead to a big penalty later. To help alleviate the stress of the April deadline quickly approaching, we’ve compiled a guide to make filing safe and simple.
A Little Planning Makes A Big Difference
The number one challenge businesses face during tax season is time. It often takes more than a month for companies to complete all tax forms correctly. It’s critical to understand your internal tax filing process and exceptions to reduce hassles and hurdles during tax season. Take time to research all annual updates, changes, and new procedures to avoid penalties.
According to the NSBA 2017 Small Business Taxation Survey, 20% of businesses spend over 120 hours handling federal tax processes. To invest time wisely, plan your schedule, roles, and tasks ahead of time to meet all deadlines without worries. The IRS supports companies with a tax calendar that easily integrates into your work calendar.
Preparing for tax season ahead of time allows companies to dig deep into business opportunities and financial challenges. That includes working proactively to reduce liability and potential losses for the upcoming year. Keep track of all payments and reconciliations on a regular schedule to avoid missed payments and deadlines. Payment organization paints a clear picture for tax preparation, including deductions and exemptions. In the midst of preparation, it’s easy for businesses to forget the small deductions that could score big for companies—especially the ‘deductible dozen’ for SMBs.
Year-end closing processes expedite the tax preparation process. Reviewing 1099 vendor information, sticking to invoice deadlines, and ensuring all invoices are in the system makes tax preparation effortless. Staying ahead of the schedule allows team members to prepare for tax season early. In the long run, it saves time to analyze real-time reporting for the financial future. Keep a checklist handy to help avoid skipping a beat.
Safety and Security are #1 Priorities
The IRS is proactively protecting businesses during tax season by encouraging implementation of updated 2018 procedures including data security measures and fraud prevention. During tax season, it’s important to be alert and aware of the signs of fraud or identity theft. According to the IRS, here are some to watch out for:
- A rejected return by the IRS due to another being submitted with an identical identification number.
- A rejected extension by the IRS due to another being submitted with an identical identification number.
- Receiving a tax transcript that was not requested.
Fraudsters will also target human resource and finance departments for employee and payroll information. The most popular scamming methods for businesses to beware of are Business Email Compromise (BEC) scams.
Simply put, BEC scammers send urgent emails that ask for confidential information or payments on behalf of the CEO or CFO. In 2016, the Internet Crime Complaint Center (IC3) reported 120,000 cases of tax fraud solely from BEC scams. These very targeted scams often come with extensive research on the business and the targeted employee. During tax season, scammers often request W-2 information as a part of their email scheme.
During the 2017 tax season, 110 organizations reported W-2 phishing reports resulting in 120,000 people targeted for potential identity fraud. Employers who are suspicious or targeted are encouraged to report W-2 data attacks to firstname.lastname@example.org and exclude any identity information. The IRS has formed a list of popular tax scams and proper reporting procedures to protect both buyers and suppliers.
Best practices for security before, during, and after tax season are critical. Top recommended finance department fraud and security practices include the following:
- Implement cloud-based or edge computing for streamlined data security.
- Partner with your IT department to enforce email security services to spot schemes and fraud early.
- Regularly train employees on how to identify and report potential scams.
- Enforce rules and regulations for data and file handling, whether manually or digitally.
Vendor Verification Can Save the Day
According to Mark J. Kohler, businesses that have paid each vendor at least $600 in services must issue a 1099-MISC form. Forgetting to submit one 1099-MISC form from a vendor can result in pricey penalties. According to Kohler, penalty fees can range from $30 to $100 per form.
“Using this as a normal business practice will give you the vendor’s mailing information, Tax ID number and also require them to indicate if they are a corporation or not (saving you the headache of sending them a 1099 next year).”
There’s no room for manual mistakes during the process—accuracy is key. To stay up to date on 1099-MISC forms, it’s suggested to keep up-to-date information from vendors. Some accounting systems have a service to help you identify which suppliers have received the 1099-MISC form, making it easier to manage without manual mistakes. Kohler also suggests obtaining a W-9 form from suppliers before purchasing goods or services as a best practice for business. All W-9 information including the Tax ID number should match using the IRS TIN Matching System as a source of verification.
Determining which vendors are exempt from filing 1099s can be tricky. Startups and freelancers are popular suppliers for SMBs. In a recent Edelman Intelligence survey, findings proved that the freelance space has tripled since 2014. In today’s society, freelancers reportedly have 27 different clients over the span of 6 months, and 76% of those clients have less than 100 employees. For companies leaning on freelancers, it’s important to know that there are tax rules to follow. Businesses that pay any contractor or freelancer at least $600 must complete a 1099 form just as a vendor would.
Keeping a year-round master vendor file electronically organizes all current and archived vendor contact information without duplicates or worrying about missing details. Payment automation systems allow businesses to implement 1099 and compliance rules for vendors as a requirement.
It’s Time to Trust Tech for Tax Season
Sifting through piles of paper to file federal tax forms can take hours and lead to headaches after fixing all those manual mistakes. Paper processes increase compliance and security risks that can rack up fines and fees. Instead, paperless processes track every payment and requisition without manually managing accruals.
To save time and trees, leverage any payment automation SaaS for accurate reporting, invoices, and proprietary information—you’ll worry less about phishing, information loss, or malware. For businesses that have payment automation, there’s no need to stress about duplicate invoices or payments. Automation improves visibility and control into invoices and current processes to analyze effective spending and payment processes.
To make auditing and reporting simple, automation stores electronic payments and invoices for businesses. Payment automation processes keep track of the small details that make a big difference when paying suppliers. There’s also less worry about fraud and compliance risks with increased protection of all payable processes with a cloud-based solution. In fact, recent AFP study findings show that paper checks are the most popular payment method exposed to fraud risks. Automation ensures that important proprietary information and invoices are safe and secure in the cloud without piles of paper.
Forgetting to file one form could lead to countless problems in the financial future. Managing W-9’s from businesses is simple when companies implement payment automation. The worry of constantly contacting vendors about the required form disappears. For most businesses using payment automation systems, electronic payments cannot be processed by the business without completing the W-9 process as a new vendor.
Additional security and compliance rules can be added to follow current payable procedures.
Even though payment automation does the heavy lifting of payables management, it’s critical to put the proper procedures in place during tax season. Payment automation does just that with updated tax law compliance by ensuring that proper payment checkpoints are in place. That includes verifying vendor documents, payables, and approvals.
Businesses that trust technology also makes document and data collection efficient and easy. There’s comfort in knowing that your company’s electronic payments, vendor information, and invoices are stored and organized without paper to increase visibility and control. Companies that implement payment automation see an improvement in real-time reporting without countless hours and headaches to crunch numbers.