Wondering whether you’re making business accounting mistakes? Here are the five biggest errors and how to avoid them.
We probably don’t need to tell you that the Internal Revenue Service is not gentle when it comes to business accounting mistakes. Good intentions do not count, and errors can earn you hefty penalties in an audit…or even make one more likely. If you want to keep your business aboveboard and in good standing, avoid the following mistakes.
#1: Itemizing Deductions Incorrectly
The standard deduction may not give you the savings you deserve, especially in the first few years of your business, when input is high and profit is low. That’s where itemized deductions come in, allowing you to capture your expenses accurately.
However, itemizing is difficult to do right and easy to do wrong. If you calculate incorrectly, take an unjustified expense or misunderstand the rules (e.g., taking a home office deduction in a space also used for personal affairs), that’s a problem.
#2: Getting Into a Routine
As your business exits its infancy and you get used to the accounting requirements, it’s easy to go on autopilot. While this may make life simpler, it also increases the likelihood that you will fall out of compliance when a rule or law changes. This can result in:
- Audits
- Penalties and fees
- Confusion
- A lot of extra work
- …and more
No matter how expert you become at preparing those business docs, make sure you keep an eye on the latest IRS requirements when it comes to record-keeping, as well as the rules governing your state and local areas.
#3: Botching the Math
Mathematics has a rough high school reputation for a reason; it’s hard, and not everyone is good at it. If that’s you, beware the desire to do your accounting yourself. Even simple computational errors can lead to big mistakes in the books, which might come back to haunt you when you’re least expecting it.
#4: Omitting Any Income at All
Income is income, and the IRS wants to know about it. Some people assume that since a small side business barely made anything, they don’t need to include it, but that’s not true. The government offers lots of write-offs and cost-saving measures to account for your business’s lack of profit, but not telling them about it isn’t one of those measures.
#5: Just “Going for It”
With so much of entrepreneurship, you must simply get started and then course-correct along the way. You’ll learn eventually, and your product or service will get better over time. Unfortunately, the government does not see things this way. Accounting is the one area of your business that you must nail right out of the gate, and that’s frankly hard to do – and that’s why you need help.
If you’re concerned about avoiding these business accounting mistakes or others we didn’t even get to (and there are most certainly others), then it might be time to work with a qualified tax and business firm. Incompass is here to help you keep those accounting records shipshape, so give us a call at (916) 974-9393 or contact us online today.