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The Benefits Of Outsourcing Tax Reporting And Payments

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One of our preferred discussion topics is how the outsourcing of back office processes can reduce overhead costs and improve profit margins. If you’ve been keeping up with our posts, this comes as no surprise. Some may say that this preference is based on the fact that String is a provider of outsourcing services, and those folks certainly have a point. But our interest in discussing outsourcing is not intended to be self-serving. We view the real estate industry as one of the few industries where many of the processes required to sell, finance and close real estate transactions fall outside the core business of the Realtor, Lender or Settlement Agent. It is these non-core processes that are ideally suited for outsourcing.

One of these non-core areas that is ideally suited for outsourcing is tax report and tax payment processing. This aspect of the real estate transaction can have many different looks depending on the type of property and the borrower/ buyer. Yet one thing is certain, from the standard property tax report and municipal lien certification to the more specialized delinquent tax and sold tax reports, proper tax reporting demands a unique level of expertise. Additionally, for those mortgage lenders and settlement agents handling tax payments in-house, the threat of potential late payment penalties and fines adds a layer of operational risk. By outsourcing the tax reporting and tax payment processes to a tax professional, mortgage lenders and settlement agents can eliminate these issues and realize a number of benefits, including:

Reduced Operational Risk
Processing mortgage payments in house requires the payer, whether the mortgage lender or settlement agent, to know not only that amounts due, but the dates on which payments are due. Does the property town collect on a bi-annual or quarterly basis? When does the property town adjust property taxes? These questions, if not answered correctly, can lead to penalties and fines for the mortgage lender or settlement agent. By outsourcing tax payment work to a third-party firm providing professional tax services, these financial risks can be eliminated.

Reduction in Expensive Tax Experts
Properly handling tax work in house requires the hiring of tax professionals. As skilled employees these professionals are, on average, more expensive when compared to other processing staff. By outsourcing tax work to an experienced third party, mortgage lenders and settlement agents can gain the advantage of an experienced tax professional at a fraction of the cost of carrying tax professionals on staff.

Economy of Scale & Efficiency
Quality providers of outsourced tax services are high-volume providers. While the average settlement agent may handle hundreds or thousands of tax reports annually, these high-volume providers deal with numbers in the hundreds of thousands. With such high volume comes not only expertise, but economy of scale and efficiency. Two attributes that benefit the mortgage lender and settlement agent through reduced per-report cost and faster turnaround times when compared to handling tax work in house.

When looking for a partner to outsource tax reporting or tax payment services, your client’s data and funds should be your primary concern. Seek out firms that have a proven track record in the real estate industry. Outsource providers that hold ISO or SSAE certifications will give you and your clients the added assurance that their non-public personal information will be handled properly and in a secure manner.

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