The End-of-Year Compliance Checklist to Avoid Tax Mistakes
The end of the year is hectic across all your company's departments. Amid rushed sales quotas, closing records, and lots of vacations, financial teams must manage tax compliance concerns so the year ends with your company in good standing. More than in most other months, the end of the year presents several risks for errors, non-compliance, and missed opportunities to save money. As the financial year ends, companies might make many common mistakes regarding compliance.
In this post, we'll discuss some of these common mistakes to explain how you can avoid making them and keep your company in good standing. We'll also discuss how tools like NOTICENINJA, our comprehensive tax management software, can make it easier for companies to better manage their tax needs.
Mistakes to Avoid with End-of-Year Taxes
Break up this list amongst the individuals in your finance team responsible for each area so your team can comprehensively work together to accomplish them all. Automation software works well in these circumstances, and it can make reporting more efficient. They can alert you to outstanding tasks and streamline notice processing, making it easier for your staff to resolve their goals and issues.
The most common mistakes include the following:
Underreporting Taxable income
Payroll is a very complex process filled with constant exceptions and interruptions. The end of the year poses even more problems because of gifts, celebrations with employee expenses, bonuses, and other costs that may or may not be considered taxable income. It's especially challenging because your payroll staff has a hard deadline.
One of the biggest risks is underreporting taxable income in the form of those less obvious types of compensation. While it's possible to amend records and correct mistakes later, developing an automated process for recording and reporting taxable income is better now.
Payroll Department Failing to Collaborate with Other Departments
Payroll teams can also perform their tasks better when there are clear lines of communication with other departments. That could include:
- Standing meetings or clear lines of communication with HR to discuss turnover, benefits packages, and other tax-related complications
- Easy channels of communication with the finance team to collaborate on tax documentation
- Communication with administrative teams so all tax notices actually reach the relevant personnel for responding to or resolving outstanding issues
Misallocating State Wages
When companies do business across state lines, they must consider state tax apportionment when calculating taxes and setting funds aside. Different states (and countries) have established different income tax rates and regulations. Your business needs to consistently comply with all of them. But it's easy to not set aside sufficient funds, not complete paperwork on time, or otherwise misallocate funds.
The same can happen for remote and hybrid staff who live and work in different states or out-of-state employees who work in an office outpost. Develop clear processes for minimizing complications and mistakes.
Not Keeping Accruals Up-to-Date
If your business uses accrual accounting instead of cash accounting, you need to keep your accruals current. Build processes that support accurate accounting when orders come in rather than when payment is received.
Also, your payroll and HR teams need to manage HSA contributions, 401(k) account matching, and other costs on a recurring basis—apportion time for this throughout the year rather than at year's end.
Budget for Next Year's Wages or Bonuses
Failure to budget is a big problem for many organizations, especially when some months see bigger expenses or nontypical payroll complications. Not only do bonuses affect available funds, but they also require changes for tax payments and records.
Failing to Implement Required Changes
The IRS, state regulators, and other regulatory bodies implement changes throughout the year. Not staying up-to-date on these changes risks your organization being non-compliant at the end of the year. Adjust your processes over time and stay prepared so your team isn't facing a lot of work at year's end.
Mistakes on Employee Information
Improperly filled-out W2s, manual data entry errors, and out-of-date information can lead your payroll and tax teams to make costly mistakes. Inaccurate filing and deduction details can make your calculations incorrect, as can incorrect employee addresses. Verify all the details early and often.
Check for Unused Tax Credits
Finally, ensure your organization uses all the tax credits and savings opportunities you qualify for. Failing to do so won't result in penalties or extra fees, but those missed refunds will increase your total costs. Check with the IRS or your local entities to determine what you may be eligible for and adjust your payments accordingly.
Use NOTICENINJA to Reduce End-of-Year Tax Mistakes and Delays
The more automation you can build into your payroll and tax compliance processes, the better. It reduces the risk of errors from manual data entry, can quickly identify gaps in your records, and reduces the work left to do at the end of the year. NOTICENINJA is our comprehensive tax automation software designed from the ground up to help track tax notices, comply with changes in tax rules, and automatically manage tasks. It streamlines the notice-uploading process and monitors all ongoing functions with an intuitive dashboard so you can see the status of all tasks.
Reach out today to see how NOTICENINJA can help with your end-of-year tax compliance.