By Mark Bosco
Reprinted from PayTech, February 2005
In today's fluctuating economy, "do more with less" is the mantra of fiscally prudent organizations. These organizations are looking for ways to lower costs while increasing the productivity of workforces that, in many cases, are already stretched to their limits.
While asking employees to perform business-critical functions outside their core responsibilities provides them with career development opportunities, it's risky for the employer. Much the way you wouldn't hire a plumber to build a fireplace, payroll and tax filing are two functions best left to those who are experts in their fields.
Considering Liabilities
Aside from the backlash of an angry workforce that isn't being paid properly, there are huge liabilities in store for the company that isn't systematically meeting its tax filing responsibilities with expert counsel and proper workflows.
When dealing with the Internal Revenue Service (IRS) and other tax divisions, there is one way to get the job done - the right way. Missed deadlines, failing to comply with changing rules and regulations, and simple math mistakes result in hefty fines.
What's a company to do? Should you put a person or team in place to stay on top of the growing and changing tax laws? Or should you outsource tax filing to an experienced company with the knowledge and information technology (IT) systems to do the job right?
Wrestling With the Decision
For many, the answer is obvious. Do what you do best. Focus on your company's core competencies, and leave the arduous tasks of staying on top of government regulations and tax filing to those who do it best.
But the choice isn't always an easy, because some organizations believe issues of privacy and control require an in-house tax filing process. Others think in-house processing will be more cost-effective than outsourcing. Most believe maintaining in-house control will allow them to handle last-minute changes and quickly correct mistakes.
However, when they examine the benefits - saving money, time and reputation - forward-thinking organizations readily embrace the opportunity to outsource their tax filing needs.
The Benefits of Outsourcing
The benefits of outsourced tax filing add up for almost any business and provide a way for companies to lower costs, streamline operations, and improve efficiencies and the bottom line.
Vendors that offer outsourced tax filing services - especially those that handle taxes and other related services, such as payroll - provide their clients with the ability to meet deadlines, stay in continued compliance and manage potential liabilities that result in expensive fines.
The enormous amount of time that it takes to stay on top of changing tax filing regulations is time wasted for employees who aren't experts in the field. In all fairness to the employees tasked with this responsibility, they won't necessarily know what they're looking for and that adds to an organization's risk factor.
Just managing tasks to stay compliant with various tax collecting agencies can be handled in a fraction of the time by the experts who have derived best practices through their tax filing experiences for companies around the country.
And, contrary to popular belief, handling the tax filing process in-house isn't less expensive than outsourcing. This is especially true when you factor in the time spent managing the process, the potential risk, and how your resources could be deployed more productively.
Accessing Resources and Expertise
While some organizations have staff members who are fluent in the tax filing laws, they may lack other resources. For example, does the team have the IT resources to ensure transactions are completed timely and with 100% accuracy? And does the team have the breadth of knowledge that the expert vendors possess?
Probably not. Supporting the level of infrastructure necessary to do tax filing right is best left to a vendor whose core business focuses on payroll and tax filing.
Consider also that tax filing expertise crosses jurisdictional and state lines throughout the United States and its territories.
In addition to federal tax filings, many companies pay local and state taxes. No two tax-collecting agencies are alike in their requirements. Regulations and deadlines are constantly changing. Does the staff have the time and experience to get the job done correctly?
For example, what would they do if you add a new regional office in a state where you haven't previously had a physical presence and employees? Boning up on state tax filing requirements involves more than a few nights burning the midnight oil. Maintaining legislative compliance - getting notified of changes and making the changes in a company's system - takes time and money.
When companies deal with localities or states, they face constantly changing requirements. If they do it themselves, odds are they will not stay current.
The company may also rely on spreadsheets and manual tracking of tax due dates. That's how mistakes happen. Outsourcing vendors that already have the robust software in their command can provide automated tax filings - federal, state and local - to prevent those mistakes.
Going Electronic
In most states and localities, there is a trend toward electronic filing. However, organizations that have been filing by paper checks and forms can't just suddenly create the electronic format. And, they may not be able to do it at all unless they make major changes to their business processes and related IT systems.
On the other hand, huge organizations with a dedicated tax filing department may choose to update their IT system to accommodate new electronic filing requirements. But that is a luxury most small and mid-sized companies can't make without incurring major expenses that would detract from their core business efforts.
There's something else to consider. If a state drops its deposit threshold for paper transfers - and a company does not know about it - the company will incur a fine.
For example, say you work for an organization that has always issued checks to cover tax payments in the amount of $22,000. However, now the deposit threshold is $20,000. All payments over that amount must be made electronically. If you write a check based on the old threshold, get ready to pay a fine. Without the proper counsel of a tax filing expert, that's a painful and expensive education.
Penalties differ from jurisdiction to jurisdiction. For instance, if you miss a federal tax deposit, you may be penalized 2% for up to the first 5 days. If the payment comes in between 6 and 15 days late, the fine could be as high as 5%. And if it shows up even later, the fines go up even more. The bottom line is that penalties add up. There are also stiff penalties for filing in the wrong format (for example, a check versus electronic format).
Remember, vendors that offer outsourced tax filing have the IT infrastructure and subject matter experts in place to handle changing regulations. Experienced firms have clients all over the country and must stay abreast of various deadlines and compliance issues. It's this investment on their part that enables them to be a good strategic partner to your organization.
Archiving Records
A good tax filing vendor also keeps the kinds of records you would keep if you had the time and space. If your firm gets audited or you need to check on a particular piece of information, your vendor can retrieve the information in a few clicks of the mouse. With everything automated, you'll have what you need when you need it. Plus, you can be sure that all the "I's" are dotted and "T's" crossed.
Example: You receive a notice from an agency claiming a payment was missed or a mistake was made in the payment amount. In some cases, these could be false notices. With an outside tax-filing vendor as your partner, many times the problem can be resolved in moments. If a mistake has occurred, your outsourcing vendor shares your concern. It will work with you and the tax-filing agency to resolve the situation.
Properly archived information can make a big difference in these situations. For instance, payroll vendors like Genesys keep information such as payment and collection histories, returns, and inquiry resolutions in a cohesive manner so that if a customer is audited or needs them for any reason, they can be sent to the company quickly. For the client to archive data in the same manner would require significant IT resources, as well as domain expertise in terms of which jurisdictions require certain information.
Outsourcing Isn't For Everyone
For some organizations, outsourcing is not the best choice. It's important to weigh all of the sides of the issue carefully before opting to outsource your tax filing needs.
For example, how big is your company and how many locations does it have? As previously discussed, large firms are usually able to dedicate staff to tax filing procedures. These companies might also have the financial means and IT infrastructure to accommodate necessary system changes quickly.
In addition, companies that deal with few jurisdictions and tax collecting agencies might want to consider keeping the tasks in-house.
It's Your Decision
For many organizations, outsourcing is a cost-effective, time efficient way to meet tax-filing requirements. With an outsourcing agreement in place, companies can take comfort in knowing they can focus on other functions while someone else takes care of the business of tax filing.
After weighing all the pros and cons, make your decision. You'll be glad you took the time to ensure that your organization is on the right track toward tax filing success.
Mark Bosco is Director of Tax Filing Services at Genesys
