During the summer, my team and I often review people’s tax returns, as a way of looking at options for tax planning, etc. We also look over non-client returns, as a way of helping out people who want a second opinion.
And, we see a lot of the same mistakes every year.
But here’s the thing that really gets me: Many business owners make the exact same mistakes … but it ends up costing them even more dearly.
And the worst part? Often, they don’t even know it. And they don’t know that they need to make a change.
I’m in an expansive mood, I suppose, in which I’m revealing some of our internal “secrets” around Team McLaughlin, and I’ve put together a short list of the kind of accounting mistakes we so often correct on behalf of our new clients.
The summer is actually the perfect time to make a change in this area — so, if you have a business associate who could use another set of eyes, please, would you kindly forward them this email?
(We generously reward referrals, but we also don’t think our clients need mercenary self-interest only to help out their friends. So do your friends a favor, and toss them an accounting lifeline.)
And, of course, if you have questions about any of these issues, feel free to drop me a note, and we’ll do what we can to help you out.
“Real World” Personal Strategy Note
Five Common Accounting Blunders Made By Small Businesses
“Our character is what we do when we think no one is looking.” -H. Jackson Brown, Jr.
1. Tracking Expenses Incorrectly
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.
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.
Frankly, this isn’t even close to an exhaustive list … but I hope it helps. Go over your books before the summer ends — and don’t be afraid to make a change.
We’ll be right here for you. (410) 224-2600
Use that number.
Valerie McLaughlin, EA