Tax Season Challenges: Guide for Small to Medium-Sized Businesses


Although tax season rolls around just once a year, businesses deal with tax issues all year round. Tracking and understanding the ever-evolving tax codes, regulations, and tangled web of compliance requirements is daunting, even for the most polished tax aficionado. Just this year, 20 states have updated their income tax requirements. And monitoring all the filing deadlines? It’s enough for any non-tax professional to want to pull their hair out.  

And then, when tax season does rear its head, additional challenges and stressors are loaded into the mix, particularly for small and medium-sized companies. Let’s discuss what some of those are and how they can be tackled.   

Lack of internal resources and a lack of data accuracy  

Many small and medium-sized businesses don’t have in-house tax expertise but a general bookkeeping staff to handle these matters. Because bookkeepers aren’t tax professionals, they lack the deep knowledge required to ensure the business optimizes its tax opportunities. What’s more, if they do not have a tax professional at their beck and call, the business also opens its door to errors, resulting in a potential miscalculation of taxable income. This could cause an over or underpayment of taxes and an increased audit risk. 

Obtaining an accurate valuation is an intricate process due to complex inventory and diverse costing methods. Someone not explicitly trained in this area could easily, yet unintentionally, miscalculate and report inaccurate numbers. 

Another potential challenge is data accuracy. Consolidating and verifying data for tax purposes is arduous when that data is siloed from different systems such as accounting, inventory, sales, etc. It takes more time than it should to reconcile, exposes the company to possible errors and discrepancies in the numbers, and possibly delays the filing, which may lead to potential penalties.  

This is especially true of manufacturers and distributors that do not have in place a tax optimized Enterprise Resource Planning (ERP) System. ERP offers access to more complete and accurate data as well as a single source of truth. Companies that approach ERP implementation not just as a one-time system upgrade, but rather as a company-wide continuous transformation opportunity are ahead of the game.   

Companies in more than one state 

Businesses that operate in more than one state have a few additional headaches. We have already mentioned that each state has its own regulations, labor laws, licensing requirements, and environmental guidelines. But different states also have different deadlines for filing various reports and payments, which can be a bear to keep track of. If a business misses a deadline in any state in which it operates, it faces penalties and interest charges that can add up quickly. Along with impacting the business’s bottom line, it also may affect its reputation, making it more difficult for the business to obtain licensees or permits in the future.  

Then, there is apportioning, which is required for companies operating in more than one state. But apportioning income and expenses can be complex, and if calculated and reported incorrectly, the business may end up paying more taxes in some states and less in others, creating an unfair tax burden. The monetary impact can be significant, the penalties can be harsh, and the business may be required to refile its returns with the correct apportionment, which could lead to additional tax liabilities.   

 It’s no wonder many consider tax season their least favorite season.  

Ditch the resource squeeze and spreadsheet extravaganza 

If limited staffing resources, error-prone spreadsheets, and pulling all-nighters during tax preparation season cause anxiety for you, it doesn’t have to. We can help. 

We partner with a variety of software solutions that take the burden off you so you can get through tax season – and the rest of the year – easily and efficiently. One such solution is Avalara, a cloud-based tax compliance software company. The evolution of indirect tax compliance is moving fast, and adopting digital platforms and systems is no longer something enterprise organizations can delay — it’s a critical task that helps its growth strategy. 

Some of the benefits Avalara include: 

Accuracy and reduction in errors – while this should be a given, we cannot overstate this enough. Avalara automates tax calculations, automatically applying accurate tax rates and rules based on your location(s) and product/service. What’s more, it offers real-time compliance updates, so you’re always applying the latest rules and regulations.  

Efficient workflow – along with consolidating data and reducing duplication, Avalara seamlessly connects with other systems, like your ERP, eliminating data silos and simplifying your tax workflows.  

Data-driving decision-making – with access to real-time insights and reports, you can analyze key metrics and trends as well as track sales tax liability and potential deductions. In addition, throughout the year, Avalara helps you identify and claim tax credits so you can optimize pricing strategies based on tax implications.  

Multi-state compliance – gone are the headaches of manually navigating different state deadlines, filing requirements, and regulations. Avalara automates tax calculations, filing, and remittance for all jurisdictions, ensuring accurate compliance across every state in which you do business. And whenever there’s an update to a state’s tax laws, the software is also updated, so it’s always current.  

If you want to get through this tax season unscathed, give us a call. We’d love to talk about how our consultants and Avalara can set you up for success this year and in tax seasons to come.