If your staff is dispersed in a large geographical area, you may be overpaying on local taxes. According to CPA Practice Advisor, business owners can often save on local and municipal taxes when they have a distributed workforce. This is because cities assess taxes based on sales and services that are performed within city limits. Therefore, if your employees are not within the local jurisdiction, you may be able to pay less in local taxes. This can be a huge boon for small businesses, especially those who are offering remote positions in the wake of the COVID-19 pandemic. Since telecommuting is likely to continue to rise in popularity even after the crisis is over, learning the ways that your company can benefit from remote employees is a must, and your tax strategy is no exception.
CPA Practice Advisor acknowledges that it is difficult to keep tabs on ever-changing (and often ambiguous) tax regulations but was still able to give a few tips to business owners hoping to use their distributed workforce to save on their returns.
Keep Track of Where Employees Work
Since cities have different rules regarding how long an employee must perform services within city limits to be considered taxable, it’s important to keep track of where your employees are working from and how much time they spend in different locations. If you are manually tracking employee whereabouts, encourage your staff to notify HR about any location changes so that you have accurate data to be able to decipher who is subject to which taxes. Make sure to keep a written trail that you can use in the event that you are asked to show evidence for your findings.
Employ an Automated Solution
However, rather than using a spreadsheet or other method of tracking that requires human updating, which can be inaccurate and take a lot of manpower to keep current, you may want to employ an automated solution. According to CPA Practice Advisor, automated programs “can leverage a multitude of factors, like a mobile or laptop app log in, VPN data, GPS and more, to automatically and accurately determine an employee’s location” and then provide audit-ready reporting to help employers prove employee location. This saves man hours, helps prevent human error, and protects you against any noncompliance penalties. This last benefit is perhaps the most alluring, since the last things you want to encounter when trying to save on your return are a costly audit or potential back taxes.
Overpaying on taxes only adds to the difficulties of being a small business owner in this challenging time as the business landscape rapidly changes and budgets evolve to match the current market conditions. Having awareness of your city’s tax laws and being able to prove where your employees are working may be able to improve your company’s financial health, as long as you are able to keep detailed records to support your claims.