Monday, July 6, 2009

Top 10 Bookkeeping Mistakes

I came across this article about the Top 10 Bookkeeping Mistakes on SmartMoney's Small Business Site and wanted to comment since it was such a good article.

As a CPA who specializes in helping small business owners, I love this article. #2, #4, and #5 really stand out in my mind as the three most critical and most common mistakes on the list.

#2-Doing it yourself. Many business owners have the ability to generate a set of books...they will provide it to a tax preparer (or worse, prepare their tax return themselves). As long as they are happy with the amount of their refund and they do not get audited, they will feel that they did a good job. However, "happy with your refund" and "didn't get audited" do not necessarily translate to "the best possible tax return." The two biggest problems with the DIY approach include a higher than usual audit risk and the loss of certain credits/deductions that you would have received if you had a pro do it for you.

#4-Not properly classifying employees. Too many small business owners classify their employees as "independent contractors" in an effort to avoid paying payroll taxes. However, if the IRS or your state decides to challange your classification (which is fairly common when your ratio of 1099s to W-2s issued for the year is too high), you will pay back all the taxes you saved plus steep penalties, fines, and interest charges.

#5-Lack of communication (especially the part about paying someone a bonus and not reporting it). This is very common at the end of the year with Christmas owners pay their employees every week through a payroll service and then all of a sudden at the end of the year, they think it's okay to just write their employee a check with no taxes taken out and without notifying their payroll service. A mistake that could be costly to both the employer and the employee!


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