Tax time is stressful for every small business owner, especially if you make certain common accounting mistakes. These simple errors can lead to missed deductions, additional fines, and plenty of unnecessary stress, all of which cost you the time and energy you could be using to grow your company. From simple disorganization to overburdening yourself with responsibilities, here’s a look at some pitfalls to avoid:
Data entry typos
Even the most conscientious entrepreneurs can make data entry errors. To catch these mistakes, go through your records and do monthly bank reconciliations, suggests Glenn Tyndall, CPA and The Balance Small Business contributor. He further recommends going through your payable reconciliations, vendor payments, and accounts receivable to make sure all of the numbers match up properly.
Records of workers and contractors
When you’re scrambling to meet deadlines and keep up with customer demands, it’s easy to slip up when managing your hired contractors and regular employees. However, when tax time arrives, this can be a sizable source of headaches. According to company finance expert Ivan Lavelle, contractors and employees are dealt with differently when it comes to accounting. To save yourself some stress, hold on to your records and set up a folder for each employee and contractor. Once you can get a clear view of each person’s payments and designation, you’ll be better equipped for tax season.
Small transactions
Petty cash purchases are easy to forget, but it’s important to track the money you spend on small items like stationery and paperclips. Lavelle notes many entrepreneurs fail to keep tabs on small shipping fees and minor retail transactions. Good records will help you keep track of your deductions, and the habits you form will help you manage your books, even as your company expands.
Categorization errors
Tyndall urges small business owners to categorize transactions right away because it can be much more stressful and confusing trying to retrace your transactions months later, when tax season rolls around. In addition to making your tax return prep easier, this will help you catch any unpaid invoices and spot customers who still owe you. Timely categorization can also help you plan your budget because you’ll have an easy reference for how much you regularly spend on necessities like supplies, maintenance, equipment, and inventory.
The do-it-yourself approach
If you’re new to the world of small business, you may want to cut costs by doing all of the accounting yourself. However, Lavelle warns this can end up costing you even more money in the long run. Do-it-yourself accountants run the risk of making costly, stressful errors and missing out on deductions that would be obvious to a trained professional. Save yourself the hassle and find a professional to help you navigate through tax time.
When it comes to small business accounting, a little bit of organization and foresight can go a long way towards making your company easier to manage. If you need more help managing your taxes, consult with a tax attorney or a Certified Public Accountant.