Five Common Mistakes in Small Business Accounting

Posted on March 15, 2016


Smart Guidelines for Small Business Accounting

small business accountingIt’s tax season, and you may be feeling the results of some shortcuts you’ve taken along the way in your small business accounting. From receipts stuffed in a box all year to not being consistent with how you treat income, you may have hit some challenges as a result of those as you prepare your tax return.

You can start fresh and make this time next year much more pleasant and less likely to catch the attention of the IRS. Here are five common mistakes that often occur in small business accounting:

Failing to keep accurate records: You need to carefully document all expenses and income, payroll and petty cash. When you claim expense items on your tax return that you cannot back up with proof, the IRS will disallow that expense. You also need to be sure that your income matches that reported by your customers. If you receive income, note the exact amount in your ledger.

Listing personal purchases as business expenses: If you list an item on your tax return as a business expense that is not a reasonable expense that would occur within the normal course of business, you may hear from the IRS. You also reduce the profits of the business with this expense, affecting the value of your company when you try to sell it. Don’t list your personal items as business expenses. It’s a clear red flag for the IRS.

Depreciating the full amount of equipment in one tax year: Sure, it looks attractive to depreciate the full cost of your equipment this year, but don’t give into this temptation. If you took out a loan on the equipment, you’ll still be paying for the equipment in future years without a depreciation allowance to offset that expense. Spread the depreciation out over the life of the loan, if possible.

Losing track of cash expenses: It’s easy to grab a few bills from the petty cash box and then get lazy about recording your purchases. Instead, keep a little folder for receipts in your car or use the notes function in your smartphone to keep a running tab of purchases you’ve made with cash. If you really can’t be disciplined with cash, don’t allow yourself to use it. It’s unusual to find a vendor that doesn’t accept business credit cards, which give you a categorized summary of spending at the end of the year.

Not outsourcing accounting: When you outsource your accounting, you gain the expertise of a seasoned specialist without the cost of hiring an in-house accountant, including onboarding and insurance costs. Hiring an accountant not only means that you can focus on your business, but you gain a trusted advisor that likely works with other companies similar to yours and can provide insight when it’s time to make a business decision.

Bert Doerhoff, CPA and the accountants at AccuBiz are experienced at helping company owners avoid pitfalls in small business taxes. Call AccuBiz to learn more about the full range of accounting and bookkeeping services we offer.