12 Common Bookkeeping Mistakes to Avoid

1. Commingling funds – So many business owners are guilty of either using the business account to pay for personal expenses or paying business expenses through the personal account. This is a big NO NO!

2. Misclassifying workers – Times are tough and staffs are getting smaller and smaller. Many business owners are classifying workers as independent contractors when they really are employees. This mistake can shut your business down.

3. Not reconciling books to bank statements each month – This is a practice that should be done each month. It ensures that all charges on your bank statement are legitimate and it also ensures that all charges on your bank statements are recorded in your books.

4. No backup – A paper trial of documentation should exist for all computer records. Technology is a wonderful thing when it works. Telling an IRS audit that your computer records were stolen or lost in a fire will not be sufficient.

5. Miscategorization or over categorization – This occurs when expenses are either recorded in the wrong category or there are too many categories created.

6. Improper use of petty cash – A system must be put in place where a set amount of money is placed in the petty cash fund and accurate records of expenses and replishments are recorded.

7. Missing deadlines – Filing returns late can create unwanted penalties and interest.

8. Excluding startup expenses – Failing to keep accurate records of the expense incurred prior to opening the business doors. These expenses are often time paid from the personal account and are often times overlooked.

9. Including equipment purchases with supplies – Equipment is a capital expenditure, and capital expenditures have to be depreciated, which means they get written off over several years.

10. Improper auto expenses – There are many options for calculating deductions when you use your car for business. (Actual expenses OR mileage)

11. Claiming too much for gifts – You may claim gifts given to your client but keep in mind that you can only deduct $25/per client/per year. So if you give a $50 gift you can only deduct $25/per client per year.

12. Writing checks out of sequence - Writing checks out of sequence opens your business up to theft from employees or vendors. 

Have you heard a tip that you didn’t know about?  Which one?  What are you going to do to clean up your books?  We’d love to hear from you.

SECRET TAX TIP #4

Even Small Deductions Can Add Up To Big Tax Savings!

Don’t forget the “de minimis” fringe benefits for maximum tax savings.  Did you know that the tax code allows you to deduct for things such as (a) tickets to theatres and sporting events, (b) cocktail parties for employees and guests and (c) the holiday gifts you give?   Although these expenditures may not seem large, they can really add up!

Again, the reason most American’s do not take advantage of these kinds of “tax breaks” is they do not have a simple system to follow.  No, I did NOT say complex.  If tracking your tax deductions throughout the year is complicated, you won’t do it.  So choose any system you want, just make sure it is right for you, your lifestyle and your personality.  If you are a detailed person who likes to track expenses and you love technology gadgets, then you’ll go about choosing a monthly tax deductions organizer differently than someone who has a hard time balancing their check book. 

The problem is not the system you choose.  The problem is continuing to believe a bunch of little deductions will not add up to big tax savings.  They do and if you need to throw a wad of cash down your toilet this month to help you experience the pain wasting money, please do so.  But, if you rather not, then start tracking those tax deductions and watch the net gain back to you add up big time come tax time!

SECRET TAX TIP #5

“EAP” Offers Tax Relief Through Your Employees!

Use an Education Assistance Plan (“EAP’) to get a $5,250 deduction per employee and reimburse your employees for their college education expenses.  With an EAP you can also take the same deduction and help pay for your child’s education.  

Look, this is definitely a win / win proposition.  The people who work for you and represent your business get more education and you get to write off for over $5,000 per employee!  And what is the down side?  Well, what if your employees need more education and you need more tax deductions?  If you don’t use a EAP, sounds like to me you are in for a double whammy!

Running a small business and trying to keep up with all the tax regulations and new IRS codes is no joke. Mess this up and you’ll have to pay big penalties, not to mention possibly suffer through a business ending IRS audit!

Let me introduce myself. My name is Bernadette and I run my own small business, too. However, in my business I specialize in knowing the VERY complex tax code we are all required by law to follow. Yes, understanding how to properly send (or receive) money to Uncle Sam by filling out certain specific forms at certain specific times is an ugly business, but someone’s gotta do it!

Truth be told, I actually LOVE helping regular middle to higher income folks minimize tax dollars so you keep more of YOUR money in your pocket! Plus, I really enjoy giving taxpayers real peace of mind, especially small business owners who have to deal with taxes year round, not just on April 15th! You should not have to live or run your business with the constant distraction of Uncle Sam looking over your shoulder month after month after month….

TAXES … Not Much Fun Dealing With The IRS Alone!

New Tax Laws and Regulations … Compliance Issues …Local, State and Federal Taxes … Quarterly Estimated Taxes … Payroll Taxes …Sales Tax … Unemployment Taxes … Personal Property Taxes … Personal and Business Tax Returns …and on and on – WHAT A BUREAUCRATIC MESS!

SECRET TAX TIP #1

“MERP” Offers Tax Benefits For Your Medical Expenses!

In order to get the full benefit from your medical expenses establish a medical expense reimbursement plan (“MERP”).  Generally, taxpayers who itemize their deductions can take a deduction for their medical expenses to the extent that the expenses are greater than 7.5% of their adjusted gross income.  Taxpayers who do not itemize get no deduction.  With a MERP taxpayers can take a dollar-for-dollar deduction whether or not they itemize for their medical care expenditures. 

 A great tip for keeping track of your medical expenses:  Since most people do a really poor job of tracking these kinds of expenses and in most cases are unable to get their hands on this information when tax time comes around, do yourself a favor right now.  Go into your storage closet, a kitchen drawer or wherever you keep file folders (if you don’t have any, a short trip to Office Depot or Staples today will do the trick) … then mark “Medical Expenses” on one for these folders.  Put this folder in the nearest drawer to your kitchen phone.  Now EVERY time you spend any money related to your medical care (even if you are not sure it could be deductible or not), put the receipt in the folder.  You will be glad you did next tax season.  The money you save in paying less in taxes will be a great incentive all by itself! 

SECRET TAX TIP #2

“SIMPLE” Plan Offers Even More Tax Savings Than Regular IRA!

Establish a SIMPLE IRA to boost your tax benefits from your retirement account.  Like an IRA, you can reduce your taxable income dollar-for-dollar for the amount you contribute to a SIMPLE plan.  A SIMPLE plan, however, comes with the added advantage over a tradition IRA of allowing a taxpayer to contribute even more money.  A Taxpayer can contribute up to $10,500 (2007) in a SIMPLE plan, as compared with the $4000 limit for a traditional IRA.

Hey, this is a BIG difference!  We’re talking about thousands of dollars more each year – tax free!  And as my dad used to say, “Give first, then SAVE for retirement and then pay your bills each month … do this all of your life and wisdom will follow you until the end.”  Yes, it IS wise to consistently sock money away, especially tax free!  And since the IRS gives you a great incentive to do so, might as well take them up on their offer …