How Neo.Tax's AI System Solved Tax Provision

We’ve talked at length about how our AI-powered solution can create a more accurate R&D tax filing by utilizing project management and payroll data, rather than relying on interviews. Accuracy and the hundreds of hours saved are two massive advantages of the Neo.Tax system, but what if your tax filing system could become a strategic finance advantage year-round? 

When it comes to calculating your tax provision, Neo.Tax’s ability to make tax real-time can make all the difference for your company.

Our vision of the future is that all of tax will be calculated — rather than estimated — at provision time, whether that’s annual or quarterly … or monthly! That’s why at Neo.Tax, we’re taking a massive first step in that direction, one tax calculation at a time. Here’s how we’re making that future happen today…

What is a Tax Provision?

Put most simply, a tax provision is the estimated amount of income tax a company expects to pay to the IRS the next time they file. That figure is then adjusted each quarter and any prior period adjustments (which can be caused by errors, changes in estimates or accounting principles, or corrections of prior period misstatements) must be implemented and disclosed. For corporations, the estimated amount of money must be set aside as a probable future expense.

To come to this figure, tax and accounting departments must take into account their net income, their current income tax expenditure, their current year permanent and temporary differences, their current tax rate, and their net-operating losses (NOL) and credits. That last aspect is massive for any corporation’s tax provision estimate — but for many, the R&D credit is not calculated until much later in the year after financial and project data is gathered and analyzed, and technical interviews are conducted with subject matter experts.

How Neo.Tax solved for Tax Provision?

Two things more to consider when understanding the importance of an accurate and up-to-date tax provision: 1) a public company’s effective tax rate (calculated by dividing the tax provision by pre-tax book income) is a massively important figure by which investors judge a company’s leadership; 2) over- and under-estimating a tax provision hurt a company’s ability to compete in the marketplace. [An overestimation means too much operating cash lays dormant during a calendar year and an underestimation can mean a massive, unexpected bill coming due on Tax Day.]

This is where a real-time tax solution like Neo.Tax becomes such a massive gamechanger. Tax provision estimates are often complete months before the credit calculation process usually starts. That means, in most cases, corporations have to rely on last year’s figure and then make a rough estimation to land on their tax provision figure. But what if you could see, in real-time, what your upcoming R&D credit would be worth?

Because Neo.Tax seamlessly links to your project-management-system and payroll data, our AI can give you a real-time glimpse at your credit, as it stands, at any moment. So, an accounting team preparing a quarterly or annual tax provision can near-instanteously see the upcoming year’s credit, prorate over the remaining months, and adjust the figure accordingly. 

No human-reliant system could ever be asked to do interviews with engineers and managers every quarter to get an accurate picture of their upcoming R&D credit. It’d be both costly and hugely inefficient. But our AI-powered system can grab the figure in an instant. 

It allows for the most accurate tax provision process imaginable, ensuring that operating budget does not lay dormant and, just as importantly, that no unexpected bills come due on filing day. 

Strategic finance is what separates average companies from great ones. By solving the tax provision process, Neo.Tax has placed an extremely valuable arrow in your finance team’s quiver.