All business owners, regardless of the size of their company, should be mindful of tax compliance and the need to stay up-to-date with the latest laws and regulations.
For small business owners that don’t have a full-time staff dedicated to tax compliance, it can be difficult to ensure that they are following all of the relevant rules and regulations.
For this reason, many business owners have turned to digitalize their compliance with a tax compliance platform.
In simple terms, digitalizing your tax compliance involves transitioning to an automated system that can track & file taxes accurately and efficiently.
This process can involve anything from filing taxes electronically to using software solutions that help to ensure accurate and timely tax payments.
Today’s article will provide a comprehensive guide on how to digitalize your tax compliance and how it can help you save time and money.
What Exactly Is Tax Compliance?
Putting it simply, tax compliance is the process of following all local, state, and federal laws & regulations that are in any way related to taxes.
All businesses must remain in compliance with tax laws and regulations, and failure to comply with these laws can result in harsh penalties, fines, and even jail time, in extreme cases.
Generally, businesses are liable for five types of tax compliance:
- Income Tax/Corporate Tax – in the same way any individual is liable for taxes on their income, companies are liable for taxes on their annual profits.
- Advance Tax – this is not exactly a different category than corporate tax, but is another compliance requirement. Businesses are required to calculate their taxes quarterly and pay them before their due dates.
- Sales Tax – also known as VAT tax, this is an indirect tax for businesses that exceed a certain threshold and are held liable for paying it.
- Payroll Tax – businesses that have employees are also liable for payroll taxes. This includes Social Security and Medicare taxes, as well as state and local income taxes in certain jurisdictions.
- Local Tax – businesses in certain states or locations may also be required to pay additional local taxes, such as property tax.
Automating and digitalizing tax compliance can help businesses stay on top of these obligations and ensure that they are up-to-date with all the latest laws and regulations.
There are three indicators that measure voluntary compliance with tax legislation:
- Filing compliance is the rate at which businesses file their tax returns accurately and on time.
- Reporting compliance is the rate at which businesses accurately report their taxable income and deductions.
- Payment compliance is the rate at which businesses pay their taxes when due.
Businesses can use an automated solution to make sure all these three indicators are met correctly and efficiently.
The first thing they need to do to get started is to select the right software or platform.
There are many different solutions available, and it’s important to choose a solution that is tailored to your business needs.
Factors to consider include features, pricing, customer service, and user-friendliness.
For example, some programs will offer different tools for filing taxes electronically and calculating income tax.
Once you have chosen the right solution, you can begin digitalizing your tax compliance process.
This involves setting up the software and integrating it with your existing systems.
Then, after setting up the platform, it’s time to automate the compliance process.
This could involve setting up automatic filing, payment, and reporting processes as well as analyzing data to ensure accuracy.
You can also use the software to generate reports and review tax documents.
Finally, you should set up a system for monitoring your compliance.
This involves regularly checking in on the software to ensure it is functioning correctly and that all of your taxes are being paid on time.
It will not only give you peace of mind about tax compliance and also reduce the chances of any potential penalties or fines, but also make the overall process much more efficient.
Tax compliance can be a difficult and time-consuming process, but with the right software solution and proper digitalization processes, you can make sure that your taxes are filed, reported, and paid accurately and on time, effectively ensuring compliance.
Automating and digitalizing your tax compliance processes can help you save time and money while ensuring that you remain compliant with all applicable laws.