What is Tax Compliance?

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A famous phrase touts that only two things are certain in life, one of them being taxes.

This certainly is true, given the fact that legislation across the globe requires individual citizens as well as business owners to report their income and pay the appropriate level of taxes on these assets.

However, the process of maintaining compliance with changing tax laws can be challenging, particularly when it comes to international organizations that do business with partners all over the world. Even the complexities involved in filing individual tax returns are on the rise, causing more people to turn to tax professionals for assistance.

Noncompliance with reporting, income tax returns, or international tax laws could result in steep fines from the Internal Revenue Service, among other consequences. For these reasons, it’s best for businesses and consumers alike to trust tax accountants and other professionals to support their tax compliance.

What is Tax Compliance?

Any person or business that’s run into trouble with the IRS or had their tax return denied or audited can confirm the critical importance of tax compliance.

Overall, tax compliance involves being aware of and observing the state, federal, and international tax laws and requirements set forth by government officials and other taxing authorities. A basic example here is the annual April deadline for tax return filing. Individuals who don’t complete their tax return filing by this date are considered noncompliant. They risk leaving their tax return on the table as well as facing fines or penalties.

Businesses, on the other hand, must align their accounting, reporting, and tax filing processes with a different set of laws and regulations than those governing personal tax filing. As The Balance pointed out, in addition to paying income tax, business entities must also pay:

Sales tax on the merchandise and services they sell in specific states
Property taxes on their real estate assets
Excise taxes and other administrative taxes
Employment and payroll taxes
Franchise or gross receipts taxes (in certain states)
Taxes on the dividends the company provides to its shareholders

Any failure to observe, report, and pay taxes according to these laws can come with significant consequences for a business. This includes fines and other penalties as well as impacts to their brand reputation.

Where Tax Rates and Tax Administration Come Into Play

To ensure tax compliance, tax professionals must follow the process of tax administration, which includes calculating the amount clients owe according to current tax rates.

When it comes to corporate taxes, businesses must adhere to both state and federal tax rates. The federal corporate tax rate, as financial software provider Patriot explained, is a flat rate that all businesses must pay as part of their taxes. The state tax rate varies ― for example, South Dakota and Wyoming do not currently have state corporate income tax rates. Other states have a flat tax rate that spans from 1% up to 9.99%, in the case of Pennsylvania.

Organizations that do business outside the borders of their home country must also observe international tax rates for those regions. It’s imperative that the different tax rates that apply to a company’s operations are observed, properly calculated, and paid according to the tax administration deadline.

Challenges with Tax Compliance and The Need for Professional Tax Accounting

There are numerous factors that can complicate and impact tax compliance. Even something as small as overlooking a detail in a tax law or inaccurately calculating taxes owed can result in noncompliance.

Additionally, as EY noted, tax legislation often changes at the state, federal, and international level. Businesses and individual consumers must adjust their tax reporting and filing according to new laws.

These challenges, as well as the consequences involved with noncompliance, are creating rising demand for professional tax accounting services. Accountants who specialize in taxation can help citizens and business owners navigate changing tax law, appropriately report and calculate the amount owed, and help ensure that taxes are paid on time.

How Accountants Ensure Tax Compliance

In addition to ensuring that businesses and individuals are aware of and observe all the tax laws that apply to their situation, tax accounting professionals also have the expertise to appropriately interpret and understand these regulations. Tax professionals, including accountants and auditors, have deep expertise in current tax law and the best practices for tax planning. These professionals can help businesses and individuals maintain their tax compliance even amid changing regulations and tax reform.

Tax professionals are also well-versed in more specialized areas of taxation that could apply to companies or individuals. This includes elements like estate and gift taxation, inbound and outbound transactions within international taxation, as well as income taxation of trusts and other estates.

Due to the increasingly complex nature of tax reporting, filing, and ensuring on-time payments to taxing authorities, there will be rising demand for professionals capable of accurately handling tax compliance. The U.S. Bureau of Labor Statistics forecasts that more than 90,000 employment positions for accountants and auditors with an expertise in taxation will become available from 2018 to 2028.

To find out more about tax compliance and how a master’s in taxation from Northeastern University’s D’Amore-McKim School of Business can put you on track for this type of career, connect with one of our enrollment advisors today.