Avoid These 10 Common and Costly Tax Mistakes

April 8, 2015
Here’s a look at the ten most common tax and accounting mistakes plaguing companies large and small.

Tax season is winding down, but it might be wise to double-check your organization’s calculations at least one more time. In 2013, the IRS collected nearly $7 billion in civil penalties from U.S. businesses due to misreported income and employment figures.

For financially secure growth, businesses, especially those in asset intensive industries like manufacturing, must practice sound tax and accounting processes. While technology has helped companies manage these financial practices more efficiently, it has yet to eliminate the potential for human or organizational errors.

Bloomberg BNA software recently surveyed 200 in-house tax and accounting professionals in order to uncover the top mistakes plaguing corporate tax and accounting departments. From process-oriented blunders to technological mishaps to organizational struggles, here’s a look at the ten most common mistakes plaguing companies large and small.

  1. Manually inputting incorrect data into an enterprise system.

Although technology has remedied a number of business issues, from automating process to yielding higher quality customer service, human error continues to be a problem and one that comes with costly consequences. More than a quarter of our survey respondents said they have seen false numbers entered in to their systems. While this may seem like a minor problem, if left uncaught, it can result in completely botched tax filings and financial statements, and can even lead to IRS penalties or an audit.

  1. Incorrectly modifying asset information from past years.

Unsurprisingly, asset-intensive industries like manufacturing are more likely to falter with modifying historical asset information than any other industry sectors. The main danger of modifying asset information from previous years is it can result in problematic discrepancies later on. This mistake may be indicative of a gap between the information professionals need and what their current enterprise systems are capable of providing.

  1. Saving financial or tax data to a personal device.

Although mobile devices and BYOD policies are helping employees be more productive from anywhere, they’re also creating a data security issue. The harsh reality is that data breaches are becoming commonplace. Saving corporate financial or tax data to a potentially unsecure personal device puts that information at risk. Companies must proactively educate employees on their IT security policy as well as the dangers of saving sensitive company data to a personal device.

  1. Closing the books prematurely.

The most common rule-based mistake identified by one out of 10 tax and accounting professionals is prematurely closing the books before all requisite data has been collected. Such process oriented mistakes can be carried over for years’ worth of records without being noticed, potentially resulting in large fines.

  1. Accidentally deleting a custom Excel formula.

Even though tools like Excel spreadsheets are notoriously problematic, they continue to be used at many businesses. So it’s not too surprising that mistakes related to the program, such as accidently deleting a formula, made the list of most common mistakes. The possibility for an Excel error is only compounded when colleagues regularly share and resave the same worksheets. Mistakes like losing a formula within Excel can throw off the entire spreadsheet of data. Whenever possible, companies should select an accounting or tax software system that is aimed at serving its specific accounting needs.

  1. Failing to maximize depreciation.

Manufacturing firms in particular are likely to struggle with using the most efficient depreciation tables. Nearly one in ten (9%) said they have failed to maximize depreciation by using the most advantageous table. Almost 7% have incorrectly applied section 199 deductions. From a depreciation perspective, this type of gaffe could be the difference between a seven-year and 39-year asset recovery period.

  1. Working on a non-secure public Wi-Fi network.

Whether you’re stuck at the airport or simply want to escape the office chaos by working at a nearby coffee shop, Wi-Fi has made it easier than ever to work outside the office. However, working on a public Wi-Fi network opens sensitive company information up to malicious intruders. Companies should educate employees on the risks associated with working on a non-secure public network. Providing staff with access to a virtual private network (VPN) can also help staff work safely outside the office.

  1. Inability to recruit or retain qualified personnel.

The success of any department typically correlates with the quality of the people in them. Nearly a fifth of tax and accounting professionals said their firm has experienced an inability to recruit or retain qualified tax personnel. This problem increases the likelihood of oversights and misjudgment. Firms must invest more time and resources into finding new ways to attract and retain talent.

  1. Lack of C-level awareness around the impact of the tax function.

A lack of executive interest or awareness surrounding the tax function’s purpose and impact often contributes to firms’ insufficient investment in the tax and accounting systems. A failure to understand the benefits of investing in high quality tax tools and personnel jeopardizes the organization’s entire operation. Greater executive awareness and support ensures firms make decisions fully informed of the tax implications and take advantage of all available tax credits and incentives.

  1. Overriding tax system data with external figures.

Although there may be times when an employee needs to override an enterprise system, doing so opens the door to a variety of possible mistakes such as inputting miscalculated or out-of-date data. Inputting figures estimated outside a central tax/accounting program leaves no paper-trail for internal or external auditors to review. Companies should require a manager’s approval before an override in the system can be occur. Tax and accounting professions should also be included in the selection and implementation phase of a new accounting software system so that they can be sure the software addresses their needs.

To avoid risking financial or reputational damage, businesses should regularly audit their current accounting practices for weaknesses. Manufacturers can make more informed decisions and better plan their financial investments by taking a more robust approach to tax and accounting.

Anand Daga is senior product manager for Bloomberg BNA, Software Products.

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