2024 tax and audit prep: smart strategies for businesses.

The tax season for 2023 filings officially begins January 29, 2024. This year, the IRS has promised to focus efforts on high-income taxpayers and corporations. Like most organizations, they’re also enhancing operations with advanced AI technologies. Auditors will use AI and data analytics to sift through figures, automate tasks like data entry and analysis, and detect fraudulent activities. Math errors, typos and suspicious patterns are the most common triggers for IRS alarms. That’s why proper recordkeeping is critical.

That said, don’t wait until the IRS is at your doorstep to get your organization’s finances in order. Here are some strategic steps you can take right now for a smoother tax season in 2024 and beyond.

how to ensure your business is tax season ready

Preparing for tax season is a year-round job. But we all know how the planning season flies by. Check off these four last-minute tasks to get up to speed ahead of your filing deadline.

1. organize and review financial statements

Gather all relevant documents, including income statements, expense records and receipts. Ensure everything is accurate and up to date, then identify any potential compliance issues and address them immediately.

2. gather required tax forms

Create a comprehensive checklist of all the forms your business requires for proper tax filing. These may include W-2s, 1099s, Form 1120 for C corporations, Form 1065 for partnerships and Schedule C for sole proprietors.

3. get up to date on tax regulations

Make sure your financial team is current on any recent or upcoming changes in tax legislation. For example, under the new Corporate Transparency Act (CTA), millions of businesses will need to provide details about individuals who have a significant ownership stake in the company to the U.S. Department of Treasury’s Financial Crimes Enforcement Network (FinCEN).

4. maximize deductions and credits

Take advantage of all available tax deductions to reduce your liability and increase your bottom line, while staying compliant. Common deductions include business expenses, depreciation on assets and employee retirement plan contributions. Tax credits can also help alleviate your tax obligations.

business tax strategies to save time and money

So you’ve successfully filed your 2023 business taxes? Take a deep breath and congratulate your team. But now is not the time to rest on your laurels. Instead, start implementing strategies to help the business save time and money during the next tax season. Here are three to consider:

1. leverage digital solutions

Relying on manual, human-intensive processes can be inefficient and error-prone. Even simple mistakes can harm an organization’s reputation and incur significant costs. Moreover, investors and financial regulators are increasingly demanding better communication, direct access to information and more frequent reporting. 

2. safeguard financial data

Establish clear data protection policies and regularly train employees on best practices to ensure they understand how to handle sensitive information properly. Apply measures such as user authentication and authorization, encryption, physical locks and security cameras. Continually update your cyber defense strategies with the latest technologies, and consider involving external data security auditors for an independent review.

3. compensate tax-efficiently

Your organization may benefit from executive compensation options that tap into various tax deductions and deferral options. For example:

• Deferred compensation plans allow executives to defer a portion of their income until a later date, such as retirement. This can reduce their current tax liability and provide additional retirement savings.
• Stock options can be used to provide executives with additional compensation while also providing tax benefits.
• Performance-based pay, such as bonuses and stock options, can be structured to meet the IRS requirements for the “performance-based” exception, which is fully deductible.

how businesses can prepare for a tax audit

While the chances of an audit are slim, the size of the company, the complexity of the tax return, and discrepancies or errors in the filing can attract greater scrutiny. We may begin seeing more audit activity as the IRS optimizes inquiries with AI and intelligent automations. In short, it’s always a good idea to be ready to answer questions about company finances. Use this checklist to get started:

how to hire a tax-savvy CFO

A qualified CFO can significantly improve the company’s financial strategy, mitigate compliance risks and ensure there are no costly surprises. Look for these skills and attributes when hiring a CFO to effectively manage corporate taxes and audits:

deep understanding of tax laws and regulations

A CFO with extensive knowledge of domestic and, if applicable, international tax laws is invaluable. This includes keeping abreast of the latest tax reforms and understanding their implications.

strategic financial planning and analysis

The ability to develop strategic financial plans that align with the company's goals while optimizing tax efficiency is crucial. Assess the candidate’s proficiency in scenario planning and long-term financial forecasting.

risk management expertise

Proficiency in identifying, assessing and mitigating financial risks, including tax-related risks, is essential. The CFO should understand the potential impact of various financial decisions and market conditions on the company's tax obligations.

experience with audits and compliance

Check your CFO candidate is familiar with audit processes and has the ability to efficiently organize and present financial records.

effective communication and negotiation skills

Clear communication with internal teams, external auditors and tax authorities is critical. Strong negotiation skills can also be beneficial in discussions with tax authorities.

technological competency

Today’s CFOs need to be proficient in digital tools and emerging technologies, such as AI and data analytics, for financial management and tax planning.

ethical leadership and team management

Upholding high standards, sound judgment and integrity, especially in financial reporting and tax matters, is non-negotiable for a CFO.

A CFO who excels in these areas can be a driving force in not only managing but strategically leveraging corporate taxes and audits to benefit the organization.