Challenge: Overpayment of Taxes
A subsidiary of an international technology device company had inaccurate financials which resulted in an inaccurate tax payment calculation. The company had assumed that their tax preparer had reviewed their financial information for accuracy – which is a common misconception.
Tax preparer used the financial information provided to calculate the tax obligation. Contrary to what some companies may assume, it is not the responsibility of the tax preparer to confirm that all financial information has been inputted appropriately into the accounting system. They assume this is the case and calculate the tax obligation using the financial information provided to them. Therefore it is the company’s responsibility to ensure that the financial information they are providing is accurate for the tax calculation to also be accurate.
Performed a detailed review and identified significant differences in financial information. When reviewing the company’s financial information, we identified a number of incorrect entries including duplications of revenue entries and missing expense entries in the accounting system. Making the appropriate adjustments caused the company’s Net Income before taxes balance to significantly decrease. Therefore their actual tax obligation significantly decreased as well.
ROI: Recovered $120,000 Excess Tax Payment
The company was able to file an amended return to recover the amount they had over-paid; however, the company had been in a tight cash flow position and therefore this excess tax payment hurt the operational decisions made by the company. Furthermore, had they not requested that we perform a detailed review of the financial information they may have never known there were errors in their system and the statute of limitations on filing an amended return may have expired.
Best Practices for Avoiding Inaccurate Tax Payments
- Accuracy, accuracy, accuracy
- It is important to reconcile your accounts on monthly basis.
- The accounting team should maintain consistent communication with tax preparers.
- Ensure a detailed review of year-end financial statements prior to providing to tax preparers.
Want to learn more?
If you need an accounting team that will assist your business with tax planning and ensure your financial information is accurate to avoid incorrect tax payments, contact us today to schedule a free consultation with one of our CFOs.