The preparation of tax returns by a corporation needs a proper record keeping system, proper calculations of taxes, and knowledge of filing requirements in federal and state levels. Multistate, multinational, and complicated business corporations may require more effort from accounting firms during the filing process. Professional tax preparation systems like CCH Axcess Tax and CCH ProSystem fx Tax assist CPA firms to handle these complexities.
In this blog, we will look at useful tips for CCH tax preparation of complex corporate tax returns in the areas of entity setting up, financial data importation, multistate tax filing, diagnostic checks, and safe and secure electronic filing. We will also learn about the ways in which CPA firms can improve their tax preparation procedures and the situations under which tax preparation outsourcing can be considered.
Understanding CCH Tax Software for Complex Corporate Returns
Axcess Tax and ProSystem fx Tax are tax preparation software programs created by Wolters Kluwer. These programs cover a wide variety of both federal and state tax returns, and also have features for calculation, diagnosis, e-filing, and preparing the returns. It is important to know what they can and cannot do prior to developing the company’s tax preparation process.
1. CCH Axcess Tax vs. CCH ProSystem fx Tax
CCH Axcess Tax is an online professional tax preparation software that prepares tax returns including those of individuals, corporations, partnerships, fiduciaries, and others. CCH Axcess Tax runs in the overall CCH Axcess suite of applications including document management and workflow management applications among others.
CCH ProSystem fx Tax is a professional tax preparation software that is suitable for firms with desktop-based tax preparation environments. It prepares tax returns of corporations and other businesses, performs electronic filings, and performs diagnostic reviews.
2. Why Complex Corporate Returns Require Specialized Software
In filing tax returns for a corporation, the tax return could include differences between books and taxes, depreciation computation, net operating losses, tax credits, shareholder data, and many other states' tax returns.
With professional tax software, the preparer can easily organize all these information into the proper tax return form and automate the computation process. Nonetheless, it is impossible for software to determine every tax position or ensure that the financial data used in the return are accurate.
3. Important Features for Corporate Tax Preparation
When considering tax software for use by accounting firms, such as that provided by CCH, one must take into account the forms the firm prepares and the procedures in place to do so. Tax importation, return diagnostics, federal and state calculations, and electronic filing capabilities may help in making the preparation process more consistent.
Integrating with document management and workflow applications may help eliminate unnecessary duplication of administrative activities. It is necessary to know whether or not all features are part of the package and if others will be needed for separate applications. The process still needs to be in place regardless of the software used.
8 CCH Tax Preparation Tips for Complex Corporate Returns
Preparation of complex tax return forms becomes much simpler if there is some kind of consistency followed throughout the entire process of collecting documents to filing the return. Here are eight tips that will help accounting firms do just that.
1. Verify the Corporate Entity Type Before Preparing the Return
The accurate classification of entities is essential to preparing taxes for businesses. The C corporation usually uses form 1120, whereas the S corporation usually uses form 1120-S. If the LLC has made the election to become taxed as a corporation, then its legal structure is not sufficient enough to determine its federal tax classification.
Before preparing the return in CCH, you need to check the entity’s federal tax classification, elections, tax period, employer identification number, and filing history. You need to look at all the relevant transactions that might have changed the reporting requirements.
2. Import Financial Data and Reconcile Trial Balances
Importing financial information could minimize redundant data entry for preparing corporate tax returns. Based on the specific CCH product used and available integration services, there may be options to import trial balances or transfer financial information from compatible accounting and engagement solutions.
Prior to importing data, it is essential to reconcile the trial balance to the completed financial statements and confirm that there is correct account mapping for each line item in the tax return. Special emphasis should be placed on depreciation, interest, dividend payments, and any book versus tax differences.
3. Review Tax Diagnostics and Validate Calculations
The CCH tax application software contains diagnostics, which identify missing data, computations, and other filing problems.
Conduct diagnostics throughout the tax return preparation process rather than at the end of the filing process. Fix relevant problems, research warnings, and identify issues requiring professional judgment. While diagnostics are an important quality control tool, they are no substitute for a review of the technical aspects of the return and cannot guarantee that all the tax positions claimed are accurate.
4. Evaluate State Nexus and Apportionment Requirements
A corporation with business in more than one state may need to file tax returns under various state tax laws depending on the physical presence, economic nexus, or any other relevant nexus laws.
The preparer needs to determine the activities of the corporation in each state before choosing the returns for that particular state in CCH. The preparer needs to consider various apportionments, adjustments, credits, and filing requirements that apply. Even though the tax software is able to make calculations that it supports, the determination of nexus of the corporation requires a separate consideration of its activities and the applicable state laws.
5. Organize Depreciation and Book-to-Tax Adjustments
Depreciation is a crucial factor in computing the corporate taxes. It becomes especially important for companies that have large investments in equipment, vehicles, buildings, or any other type of fixed assets. The amount of depreciation for tax purposes can vary from the book amount due to different depreciation methods and asset classes.
Keep accurate records of your company’s fixed assets schedule and reconcile them with your general ledger before transferring the data to CCH. Make sure you are up-to-date with all additions, disposals, depreciation methods and available deductions. Preparers need to reconcile their book income with the taxable income as well.
6. Establish a Consistent Corporate Tax Preparation Checklist
Use of a checklist will ensure that consistent procedures are used in preparation by the accounting firms among their corporate clients. The checklist should entail financial statement analysis, trial balance analysis, depreciation analysis, ownership structure, previous year's return, estimated tax payments, and federal and state regulations.
Ensure that each step of the preparation procedure is assigned to the right person, along with deadlines for the preparation, document collection, review, and approval of the client. Accounting firms using CCH in addition to document management or workflow software will be able to arrange documentation and outstanding preparation assignments. This procedure is especially important in cases where many employees prepare the same return.
7. Secure Client Information and Manage Electronic Filing
The preparation of corporate taxes includes confidential financial information, details of ownership, and other sensitive corporate information. An accounting firm should control access to such information among authorized personnel, employ multifactor authentication when possible, and develop procedures for the secure transfer of documentation among clients, preparers, and reviewers.
Prior to submitting any return electronically, ensure that it has gone through the firm’s review process and received proper authorization. For instance, corporate electronic filing requires the completion of form 8879-CORP or another method of authorization. Post-submission, it is important to keep track of electronic filing receipts and investigate any rejections instead of taking submission as confirmation.
8. Use CCH Training Resources and Monitor Tax Law Changes
Changes may occur in corporate tax regulations, state filings, and software features from one filing season to another. Wolters Kluwer gives information, training, and technical support on CCH applications to help companies use their software and answer any software-related concerns.
The accounting firm needs to have processes for reviewing any software changes and tax laws during the year. The preparer of specialized transactions needs to refer to reliable tax information and receive adequate technical review. Training and continuing education are for different reasons, but both are important in corporate tax preparation.
When to Hire an Accountant or Outsource CCH Tax Preparation
Even with the use of professional tax software, complicated corporate tax returns might require considerable preparation and review time. It is essential that accounting firms determine if their internal resources and capabilities are able to meet the needs of their clients.
1. When Complex Corporate Returns Require Professional Expertise
For corporations with multistate activity, international dealings, substantial ownership changes, or complex election decisions, tax expertise may be required. The services of a knowledgeable corporate tax consultant will enable an assessment of reporting requirements, verification of supporting documents, and analysis of any unusual transactions.
If a company is facing any outstanding tax notices, inadequate books of account, or disparities between the company’s accounting records and tax records, professional assistance may be advisable. Early involvement of the appropriate experts means that more time will be available for investigation and preparation of supporting schedules.
2. How Outsourced Tax Preparation Supports CPA Firms
Outsourcing of tax preparation services will allow CPA firms to handle peak-season pressures and prepare more returns without having to immediately increase the permanent staff of the firm. In certain situations, outsourcing of services may involve the use of an external group of professionals who will help with organizing source documents, preparing tax work papers, entering information into the tax software system, and drafting tax returns to be reviewed internally.
CPA firms need to ensure that their outsourcing partner is qualified enough to work with the CCH software that they use in their practice. Preparation instructions, secure document exchanges, turnaround time, and quality control requirements are all necessary.
3. Improving Corporate Tax Preparation Workflows
The preparation process of an effective tax is initiated well before the due date. The firm needs to set up a process for the collection of documents, check previous year’s return, identify any exceptional transaction and reconcile books before preparing the current year return.
The constant communication process among the preparer, reviewer and client helps avoid any delay in information collection process. It is important that the accounting firms analyze its work process after every filing cycle.
Corporate tax returns need a combination of proper financial data, tax software, expertise and review processes to be prepared effectively. The use of CCH Axcess Tax and CCH ProSystem fx Tax will give you professional assistance in arranging information on corporate taxes, running calculations and diagnostics, and handling electronic filing.
The CCH tips for tax preparation of complex corporate returns can assist accountancy firms in ensuring that their process of tax preparation is done effectively. The firms can prepare all the taxes by themselves or with outside help, but proper planning and review is always crucial.
The Fino Partners provides outsourced tax preparation, bookkeeping, accounting, and financial reporting support for U.S. CPA and accounting firms. Our services can assist with organizing client documents, preparing tax workpapers, and supporting corporate tax preparation workflows during demanding filing seasons.
