Small business owners often love the idea of providing a new service or product but lack the accounting and bookkeeping skills needed to ensure that their business is profitable and legal. Without guidance, most business owners make at least a few of the following errors, which can result in substantial tax consequences or simply loss of valuable revenue. Some of these mistakes can be easily avoided if known in advance. Consider if your business is making any of these errors in finances or reporting practices.
Throwing Away Receipts for Small Purchases
Everything counts, even in small amounts. The Internal Revenue Service (IRS) states that you never need to keep any receipt for an item that cost you less than $75, but why would you not ? These receipts can be important not only to ensure that you credit yourself for every business expense, but they can come in handy if you are ever actually audited by the IRS.
Mixing Business and Personal
Mixing business and person may be great for networking, but it is a terrible practice for your finances. Many smaller business owners think that they are simply too small to open a business bank account or keep separate financial books. This could not be further from the truth. Always keep your finances separate. This can help ensure that you credit your business for any business expenses, and also be more organized in case you are ever audited by the IRS.
Expensing a Large Purchase in Total
Accounting is a strategy game, and if you purchase anything for your business that you intend to use longer than a year, you should “capitalize” that purchase as it will depreciate over time.
Not Keeping Hard Copies
While all records seem to be electronic, as a business owner you should consider keeping paper records of all major transactions. This is important not only for recordkeeping purposes but also if you are ever audited in the future. Some banks only keep records online for a certain period of time, so it is important to have a printed copy.
Doing Your Business Accounting Yourself
As a small business owner, you may not have a lot of capital. However, one area you should not avoid is spending money to have someone help you with your finances. You could be losing more money by not obtaining the advice of a professional, and cost yourself even more when you realize that you have done your accounting incorrectly and are now the subject of an audit.
Incorrect Employee Classification
Every employee must be classified for the IRS differently, and different types of taxes will apply to each of those employees. A W-2 tax form and a 1099 tax form are different, and misfiling or misclassification can cause hefty fines and penalties. Visiting with a professional can help you understand how to classify all of your employees.
Contact an Experienced Business Attorney Today
Contact an experienced business attorney to help understand how to prepare your small business for all the financial challenges you may have. At De Cárdenas Law Group, we make it our mission to help you with your business. Give us the opportunity to show you how we can help you stay compliant with our legal services. You can schedule a meeting with our legal team in San Francisco or South Pasadena by calling (626) 577-6800.