Bookkeeping can be the bane of many a business owner. But it doesn’t have to be the onerous chore it’s often made out to be. Avoiding bookkeeping mistakes can keep your business successful and headed in the right direction. Here are some common bookkeeping mistakes and how to avoid them.
Waiting too long to do your bookkeeping tasks can add to the stress you feel in staying on top of your business. Set aside time on a regular basis to log in your receipts and payments, and to do other common bookkeeping tasks like invoicing clients and paying quarterly estimated taxes. Consider it as you would maintenance on your car – something you do to keep the engine humming along smoothly.
Procrastinating on your receivables can be especially hard on your business. Send invoices in a timely manner and follow up when you need to. Make sure you don’t delay the income you need to keep your cash flow stable and on the positive side of the ledger.
If you’ve ever gotten to tax time and realized your records are a mess, you know what real panic is. It’s important to save all receipts that are eligible as business expenses. File these in a physical place or, if your receipts are electronic, maintain up-to-date computer files containing them.
Similarly, it’s vital to keep accurate income records that reflect the current state of your business. At a bare minimum, you will want to employ spreadsheets or accounting software to help you track both payments and receivables. This is particularly important if you’re ever audited by the IRS or another taxing authority, which will want proof to back up your tax forms.
When you calculate your annual taxes, you will want to deduct business expenses from your gross income. That’s the best way to reduce your tax burden. But not every expense is treated equally come tax time.
Qualifying meal expenses, for example, are deducted at 50% of the total. And entertainment expenses for clients are no longer deductible at all, while treating employees may be.
Try to appropriately categorize expenses when you do your books. Make sure you understand the different categories of expenses and how they impact your business enterprise.
Keeping Business and Personal Expenses Separate
One bookkeeping mistake that small business owners sometimes make is failing to keep business and personal expenses separate. Except when they can’t be segregated, as in the case of utilities for a home office, you should always try to place a wall between business and personal expenses.
The best way to accomplish this separation is by opening a bank account that you use solely for your business. Having a business credit card also helps you keep the two apart. Separate bank accounts and credit cards also help you to continually gauge the health of your business.
Forgetting About Sales Tax
The goods and services you offer may be subject to state or local sales taxes. It’s imperative that you collect these taxes, then report and pay them to the appropriate taxing authority. If you don’t, you may be subject to back taxes and penalties.
If you sell via the internet, collecting sales tax can be quite complex. For example, the rules and regulations on interstate sales tax are currently changing, as states challenge the status quo on such sales. Make sure you know what’s expected of your business in the way of sales tax reporting and collection.
Spending Too Much Time On It
While efficient bookkeeping is integral to the success of your business, it’s also possible to get carried away and spend too much time on it. Be cognizant of when your recordkeeping and organizational practices are taking you away from doing the primary job of taking care of your customers or clients.
If you find that bookkeeping is too much of a burden for you, consider hiring a professional bookkeeper to assist you. Some bookkeepers leverage the benefits of technology and combine it with personal service to offer you time-saving solutions that put you in touch with your key business data whenever you need it.
This post is to be used for informational purposes only and does not constitute legal, business, or tax advice. Each person should consult his or her own attorney, business advisor, or tax advisor with respect to matters referenced in this post. 1-800Accountant assumes no liability for actions taken in reliance upon the information contained herein.