As all taxpayers in the United States will agree on, the system is hardly easy. You can read Accounting Today for as long as your heart desires, but there are still plenty of areas of confusion amongst the various programs that the country offers.
For small businesses, particularly those who are looking to take something of a DIY approach with their tax, this can be troublesome. This is something that Barry Bulakites has become accustomed to following years of experience in the profession, and this is why he would always advocate hiring a professional – even if your business is in its early stages.
If you do insist on the DIY approach though, this article will now take a look at some of the biggest mistakes that small businesses around the United States commonly make in relation to tax.
Mistake #1 – Small transactions aren’t accounted for
The first mistake is something that pretty much every small business in the land will be guilty of. One of the most common bad habits is to only account for those mainstream expenses. In other words, the big ones that stand out like a sore thumb on the bank statements.
Well, this is asking for trouble. Over time, all of those smaller transactions start to add up, and it becomes more difficult to keep on top of them. By the time it comes to submitting your tax return, you are all over the place with these small transactions.
Particularly if your business mainly deals in cash, this can be an obvious problem and one you need to address as a matter of urgency.
Mistake #2 – Not differentiating between profits and cash flow
This next mistake can have huge repercussions on a small business. They say that cash flow is one of the biggest problems that face young companies, so let’s get into the details of why this occurs.
A lot of companies don’t receive full payment when they conclude a transaction. There are usually payment terms, which can stretch to as much as three months after the date the work was completed.
For those companies that need to invest their own money in a project, this is a major problem. It means that they are spending money which they effectively haven’t been paid. Ultimately, they are left short of cash, and this can be an accounting nightmare.
Mistake #3 – Not reconciling your accounts
Another common mistake made by young businesses is failing to reconcile their accounts. For those unaware, reconciling can be referred to as a checking process. You are checking if your accounts in your books are the same as what is showed in your actual bank account.
This relates to the first mistake we documented, where small costs are sometimes forgotten about. When you start to reconcile your accounts, it becomes clear what your true balances are and this means that you are provided with a much more accurate outlook on your business.