( ENSPIRE Business ) The Importance of Properly Tracking Expenses for Businesses
Keeping track of money is an essential duty for operating a business. From tracing revenue to calculate taxes, keeping up with everything is important. However, it’s easy to let simple mistakes turn into big problems. Read these bookkeeping mistakes to avoid when operating a business.
Combining Business and Personal Expenses
When you began your business, you probably used your personal bank account for business purchases. Then, when things took off, perhaps you made personal purchases with your business funds. It can become challenging to differentiate the transactions, and it causes you to miss out on a tax write-off. You can avoid this issue by opening a business bank account and monitoring all transactions to keep a record of everything.
Throwing Away Receipts
After purchasing personal items, it’s common for people to throw away receipts. However, you should never throw away receipts from business expenses—they make bookkeeping easier. You can track transactions throughout the year and properly categorize your expenses with receipts. Furthermore, if the IRS decides to audit you or question your return, receipts are one of the ways you can prove your transactions.
Failing To Classify Employees
When you operate a business, your workers are either employees or contractors. One of the key differences is that you don’t pay payroll taxes for independent contractors. Therefore, you need proper documentation for each worker that states their role but failing to classify workers can lead to problems. Suppose you own a business in California. In that case, misclassifying employees are among the signs you need to hire an EDD tax lawyer because the Employment Development Department (EDD) can audit you.
Going Paperless Without a Backup
Technology is an excellent business tool that allows owners to track expenses and keep records of transactions. However, technology can glitch, and your business’s information can become a victim of a cyberattack or become lost. It’s essential to keep paper copies of all your information to avoid missing documents and other essential information.
While operating a business, keeping track of money is one of the most important things you must do throughout the year. This is a big responsibility, and you can suffer the consequences for little mistakes during tax season. By reading these bookkeeping mistakes to avoid when operating a business, you’ve gained insight into this important business aspect.