This year, companies likely can expect a more stable tax climate with a divided Congress preventing the implementation of major new US tax laws. However, that forecast may not hold if the deep recession becomes a reality and seizes the economy.
Since the pandemic, the way companies are taxed has changed, largely because of remote work opportunities and employees moving locations as a result. Many states provided guidance to allow businesses to have a temporary presence without triggering a reporting obligation.
However, these relief provisions were not permanent, and many have already expired. As businesses continue to allow remote work, state and local compliance is due to increase.
CFOs currently are facing numerous challenges related to long-term strategic tax planning, with one of the biggest being general uncertainty over the direction of US and global tax policy. Global tax policy and legislation also are plagued with uncertainty depending on which legislative party controls the House, which is true of our current political system.
With this in mind, the following initiatives should be prioritized by CFOs this tax season in order to prepare for current and possible new taxes this year:
Partnerships across the C-Suite
CFOs are likely finding the business challenges of tax requirements increasingly prominent, especially with external pressures from legislative change, as well as navigating internal operations and priorities.
To start, CFOs should seek to balance the benefits of long-term strategic tax planning with the costs of implementing and maintaining alternative structures. Deepening their relationships with the rest of the C-Suite and the wider organization is critical in cultivating buy-in for critical technological and operational enhancements.
Further, leaning into collaboration and partnership—particularly during busy times like tax season—increases the likelihood of aligned priorities across the organization. These relationships can be the deciding factor in achieving company goals and seeding long-term resilience.
Clear communication with tax compliance teams
To foster these relationships, CFOs need to clearly communicate tax strategy and initiatives to rally the support of their team. Surprises and risks can easily be avoided by engaging in discussions with the tax compliance team to identify additional compliance requirements resulting from tax law changes.
For example, it is a requirement to capitalize and amortize research and development expenditures for federal tax purposes effective for tax years that began after Dec. 31, 2022.
By engaging in important discussions with the tax compliance team, CFOs can more effectively arm the Board and the wider organization with critical information, while providing insight into the operations and logistics.
Automation and the right tech stack
In order to support a strategic allocation of resources to circumvent increased tax complexity and reporting requirements, a supportive tech stack is crucial. By automating and integrating the tax provision and income tax compliance processes, CFOs can gain greater visibility and increase efficiency.
The implementation across multiple work streams and teams results in high ROI, major savings and increased agility for organizations’ tax teams.
CFOs are likely finding the business challenges of tax requirements increasingly prominent, especially with external pressures from legislative change, as well as navigating internal operations and priorities.
In a typical tax function, the compliance team conducts data collection and analysis on a given income tax provision before preparing tax returns. However, the tax provision documentation is often not fully leveraged to support the preparation of the income tax returns. An automated and integrated tax provision and compliance process can improve quality and efficiency, further allowing the team to spend more time on strategic planning.
In all, global tax information reporting requirements will continue to grow and have a material impact on the operations and related budget allocations within the tax function. Partnerships across the C-suite, clear communication with the tax compliance team, along with automation and the right tech stack, will be critical for CFOs to manage the added compliance burdens and stay ahead this tax season.
Paul Henderson is Chief Accounting Officer at Tipalti, an accounting software financial technology business that provides accounts payable, procurement and global payments automation software for businesses.
Tipalti | First Look
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