Common Business Accounting Mistakes That Hurt at Tax Time
Poor accounting throughout the year creates serious problems at tax time. Here are the most costly mistakes and how to avoid them.
Common Accounting Mistakes That Hurt at Tax Time
1. Mixing Personal and Business Finances
The single most common mistake. Makes it impossible to separate business deductions from personal expenses. Open a separate business bank account and credit card on day one.
2. Not Keeping Receipts
The IRS requires documentation for all deductions. Without receipts, deductions can be disallowed in an audit. Use apps like Expensify or Dext to digitize receipts immediately.
3. Not Recording Cash Transactions
All cash received is taxable income. Failing to record cash sales is a common audit trigger for cash-intensive businesses.
4. Misclassifying Employees as Contractors
The IRS is aggressive about worker classification. Misclassification leads to back payroll taxes, penalties, and interest.
5. Not Reconciling Bank Accounts Monthly
Unreconciled books lead to errors, missed transactions, and duplicate entries.
6. Incorrect Expense Categorization
Deducting personal expenses through the business, or miscategorizing expenses, can lead to audit risk and inaccurate financials.
7. Ignoring Accounts Receivable and Payable
Not tracking who owes you money (and who you owe) leads to cash flow problems and inaccurate income reporting.
8. Not Tracking Mileage
Vehicle deductions require a contemporaneous mileage log. Reconstructing mileage at year-end is risky.
9. Not Filing 1099s
Required for contractors paid $600+. Penalties: $60–$310 per form not filed.
Accounting a mess? Our bookkeeping services can clean up your books and keep them that way.