Manual Tax Process vs. Tax Compliance Automation: Side-By-Side Comparison
In today’s era of data-driven decision-making, tax teams are shifting their focus from manual processes toward tax compliance automation.
You wouldn't peel a potato with a butter knife, right? Why would you limit yourself to outdated technology and processes in your tax team?
Automation isn't a buzzword, it's a game-changer for increasing efficiency, accuracy, and regulation compliance. While traditional manual processes may have worked in the past, they are quickly becoming obsolete in today’s fast-paced business landscape.
This blog post will discuss why tax teams should automate their tax compliance processes and the benefits digital transformation can bring to your organization.
Manual Versus Automation
Compliance Tracking Process
| Manual | ||
|---|---|---|
| Track all filing deadlines in various spreadsheets | Receive alerts when upcoming reports are due | Increased efficiency |
| Trust team members are filing on time | Gain complete visibility and understand the workload with a dynamic reporting dashboard | Decreased risk with last minute filings and late filings |
Keeping track of compliance is the necessary behind-the-scenes work that keeps your business running smoothly. It's not just about maintaining compliance; it's about mitigating financial and operational risk.
Even if your business takes compliance seriously, missing the reporting and tracking part of the compliance process can result in severe cash drains from fines and missed opportunities for deductions.
With tax compliance automation and due-date tracking software, you can track and report on your compliance process from start to finish. This helps showcase the value of your tax compliance and allows transparency to see what the team's workload looks like.
Maintaining Company, Customer, & Vendor Licenses
| Review all licenses monthly and take note of any expiring or expired licenses | Recieve automated alerts when licenses are expiring 30, 60, or 90 days prior | Decrease in time spent reviewing licenses |
| Find the contact for each license and reach out requesting updated license information | Each license has an assigned stakeholder for easy contacting | Increased accuracy and increase in time savings |
| Make any administrative updates to license changes | Bulk import new license information into the database | Utilize time savings for other high-level tasks |
Managing business licenses is an integral part of maintaining compliance requirements. Monthly, businesses should review their company, customer, and vendor licenses.
This task often gets put on the back burner for organizations because it is incredibly time-consuming and tiresome. However, it is necessary. License compliance is crucial to operational stability and can come with costly fines or even loss of business if not kept up-to-date.
Tax compliance automation simplifies this process by handling renewal deadlines and setting up and sending notifications to relevant stakeholders for you so you can utilize that time for other revenue-generating activities.
Sourcing & Validating Licenses
| Research individual customer licenses monthly on multiple sites | Receive updates from private-access lists you hold licenses for | Takes away the noise of having to check and re-check licenses monthly |
| Navigate local jurisdiction, state, and federal license lists | Source and validate licenses from public lists using dynamic filtering | Save time and people resources |
| Make any administrative updates to license changes | Bulk import new license information into the database | Improve accuracy before licenses are included in a return |
Sourcing and validating licenses is another task that gets shifted to the bottom of a business's priority list because it is incredibly tedious and time-consuming. This is a mistake, though; if businesses do not have the licenses to operate or do business in various jurisdictions, it can lead to a severe financial penalty or loss of business operations.
With compliance automation, it does the work for you. No need to sift through licenses monthly. It evaluates if a company has the necessary licenses and alerts if any changes need attention. This saves the company time to utilize their talent in other higher-level areas.
Preparing Tax & Compliance Data
| Gather all monthly physical and digital receipts, invoices, and documents | Import data into data engine to create a one-source of truth | Provides peace of mind that you are working with clean data |
| Organize large datasets in spreadsheets and manipulate data using VLOOKUPs | Cleanse and harmonize data with an intelligent ETL and data transformation routines | Increase accuracy by eliminating human error |
| Research and abide by jurisdiction formatting and regulations | Automatic jurisdiction regulation changes built into and updated in the data preparation workflow | Improve accuracy with filing without having to research each jurisdiction individually |
Manual tax processes require tax teams to manually gather and sort through large masses of financial data, a process that is time-consuming, error-prone and inefficient.
In fact, 88% of spreadsheets contain errors.
Having to manually stay up-to-date on all the constantly changing regulations of local, state, and federal jurisdictions can feel overwhelming.
If you automate your tax compliance processes, you can say goodbye to all that hassle. A tax software will handle the heavy lifting by organizing your data neatly. It takes care of standardizing the easy stuff and even tackles data that needs a bit more attention. This way, your tax team gets top-notch, consistent data, making the tax compliance process smoother, letting them move on to the next task with peace of mind.
Generating Tax Forms
| Source applicable tax forms on multiple sites and enter all information by hand | Data is loaded automatically into the reports | Eliminates human error and potential penalties |
| Review each filing for accuracy and compliance by cross-checking with financial statements | Tax rules are applied in real-time based on jurisdiction requirements | Decrease risk of noncompliance with constantly changing regulations |
| Find the respective website and file electronically if applicable | Review and hit "Send" to electronically file | Saves time and increases efficiency within the filing process |
When it comes to generating tax forms, the traditional approach involves manual efforts to compile and create the necessary documents.
It's not uncommon for tax teams to have the tax forms saved on their desktop. They wouldn't even know if the jurisdiction updated them and they were filing incorrectly until their file is declined or they receive an assessment.
This method can be prone to errors, and overall inefficient.
Tax compliance automation streamlines this process by taking care of the majority of the work. With tax software, filings can be completed in minutes and with high accuracy, without spending countless hours on manual procedures.
Calculating Taxes
| Visit local, state, and federal jurisdiction websites for new regulation changes to tax rate and product classification | Automatically have up-to-date tax rates, weight/volume-based and value-based tax rates in your tax determination engine | Eliminates human error and potential penalties while abiding by the ever-changing regulations of indirect tax |
| Create updated tax determination rate tables | Easily personalize tax determination with intuitive tools, without the help from IT | Elevate members of your team to focus on more strategic initiatives |
| Find the respective website and file electronically if applicable | Calculate accurate excise, sales, and use taxes using rules built by industry experts | Saves time and increases efficiency within the filing process |
Calculating taxes is a complex process that involves specialized knowledge and compliance requirements, especially in highly regulated industries. Manual calculation methods in spreadsheets can lead to errors and delays in tax processing, which can result in severe consequences like penalties that impact the bottom line.
When tax teams use an automated tax compliance process, the tax determination engine guarantees precision and accuracy. No more sweaty palms over manual miscalculations. Automation is a smooth error-free approach to tax determination.
Reconciling Data
| Compare transaction data to the general ledger and perform V-LOOKUPs | Match data sets with set tolerance | Elevate your people talent to higher-level initiatives |
| Identify discrepancies and investigate and resolve by referencing physical and digital financial records | Alerts to data out of tolerance | Saves time and increases efficiency throughout the reconciliation process |
When multiple data sources are involved in tax compliance, the process can be complicated, which can make reconciliation processes difficult.
An automated tax compliance system will take over this responsibility by reconciling tax data in real-time and comparing it with the other internal financial data ensuring accuracy and efficiency.
Defending Audits
| Cross-reference transactions and tax codes and review methods used for calculating taxes | Track each transaction from its imported date to its presentation on the report | Saves you the headache of sifting through and trying to find audit information by establishing a strong audit trail |
| Search and collect all relevant documentation for the audit period | Pull all data for an audit period using proprietary data tools | Increase efficiency and peace of mind that all data is housed in your system |
The dreaded A-word, audits. Unfortunately, come with the territory in every business's tax compliance adventure, and they bring the risk of substantial financial or corporate repercussions. Even if everything is in order and entirely above board, if your record-keeping is lacking, it can lead to hefty extra expenses due to tax penalties and deductions. This, in turn, can notably impact your business's overall profitability.
When your organization has an automated tax compliance process in place that follows legal and regulatory guidelines, an efficient and speedy process will allow you to limit audit exposures and guarantee a consistent and robust audit trail.
Benefits of Indirect Tax Automation
Boosted Efficiency
Dealing with tax processes manually can be a task prone to errors, causing delays and costly blunders. Automation empowers tax teams to concentrate on more valuable tasks, leaving repetitive and time-consuming work to technology. This not only enhances efficiency but also gives tax professionals more time to analyze data, pinpoint opportunities, and make well-informed decisions.
Enhanced Precision
Meeting tax compliance standards demands a high degree of accuracy, as even minor mistakes can lead to penalties and audits. Manual processes leave room for human error, but automation significantly diminishes these risks. Sophisticated tax compliance automation software employs algorithms to validate data and detect inconsistencies or errors, ensuring precision in tax filings.
Cost-Efficiency
Tax teams often face the challenge of achieving more with fewer resources, and manual tax processes can be expensive in terms of time and resources. Indirect tax automation helps businesses cut costs by reducing the reliance on manual labor, minimizing errors, and streamlining processes. This allows companies to redirect resources to other areas of their business, ultimately resulting in cost savings.
Return on Investment (ROI)
While investing in indirect tax automation may involve initial costs, the ensuing benefits can lead to a substantial return on investment. With increased efficiency, enhanced accuracy, and cost savings, businesses can experience a positive impact on their bottom line. Additionally, automation empowers tax teams to effectively manage compliance risks, reducing the likelihood of expensive penalties or audits.
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VP of Revenue