Five Common Accounting Blunders Made By Small Businesses

1. Tracking Expenses Wrongly
Many business owners pay for expenses out of their own personal funds. And, they often do not keep accurate records of these expenses. It is important to keep accurate records of any and all expenses and whether or not they were reimbursed. The IRS frowns at the co-mingling of business and personal funds and the best way to protect yourself in the event of an IRS audit is to avoid doing it.

2. Employee MisClassification
Many businesses have a combination of independent contractors and employees. The business must properly classify their employees for tax purposes. There is a slew of news stories out there these days, about how the IRS is cracking down big time on this common mistake.

Oh, and this is most commonly seen in the classification of the ownership interest, by the way.

3. Not Reconciling Regularly
It is vital that businesses reconcile their financial records at least on a monthly basis. Errors are more likely to be made if this task is not completed on a timely basis.

4. Failure To Back Up Records
Even though we live in a technological age, issues can arise. It is important for every business to backup their data to avoid crucial losses. That’s why you should maintain two sources of your data, as we do for our clients around here.

5. Wrong Expense Categorization
For proper tax reporting, business expenses should be properly categorized. When business owners do their own books, this can be a royal mess … and even when a staff member does it, the reckoning come tax time can be severe, as certain expense categories are deductible in different ways. Further, you can be leaving deductions on the table due to incorrect classifications.