Business owners often feel rushed. There’s never enough time to get things done; even the priority tasks are a struggle to complete. Sometimes, all that rushing results in mistakes. Here is a list of common accounting mistakes to avoid.

1.  Failing to Maintain Accurate Records

If your business has an accounting package, be sure to enter all financial information into the software. If the software doesn’t meet your needs, you may have the wrong program for your business. Even if you are keeping manual records, it’s still imperative that you maintain accuracy. Review the items below to ensure you are keeping proper records.

A.    Enter all cash transactions 

If your cash register is not tied to your accounting software, you need to enter the cash transactions manually. This task should be performed daily, as it is easy to forget a cash transaction 30 days after it occurred. The sooner you enter your transactions, the more precise your records will be.

B.     Enter payables  

Also, when a bill comes in, enter it into your accounting package on the same day. This is the best way to track how much money you need to cover upcoming expenses. When you pay the bill depends on the due date and your cashflow.  

C.     Enter receivables  

If you invoice customers through your accounting software, the receivable should automatically appear. If your software doesn’t generate invoices, you will need to enter the receivables manually. This information will help you forecast your cashflow.

D.    Enter loan information 

If you receive a business loan, be sure to also enter that data into your accounting software. The loan is a liability that will impact your financial reports. Failure to enter information on your loan and its payment will create inaccurate financial statements.

Keeping your records up to date is the only way to know your financial position. Without that information, you aren’t making decisions; you are guessing.

2.  Failing to Ask for Help

No one expects a business owner to be an expert in finance or accounting. Yet, many owners fail to ask for help when it comes to financial matters. Not asking questions or getting help could have negative consequences for your business.

E.     Sales Tax  

Make sure you are applying sales tax appropriately, especially if you do business online. Depending on your software, you may need to enter the sales tax separately. Since sales tax laws are becoming more complex, it is essential to get help if you are not 100% sure.  

F.      Business Expense  

You and your business are not one and the same. At least not when it comes to paying taxes. Be sure to separate your business from your personal expenses. If you are unsure about these figures, ask a professional for assistance.  

G.    Payroll 

If you think payroll is easy, think again. Doing payroll is not just about calculating gross wages and subtracting taxes. There are other deductions to consider including HSAs, 401(k)s, child support payments, back taxes, and the list goes on. And that’s just the employee side of payroll. What about business-related expenses like worker’s comp or quarterly tax payments? If you happen to miss a filing date, financial penalties may apply.  

There’s nothing wrong with asking for help. Tax laws are complex, which is why you should talk to a professional when you have a question.

3.  Failing to Monitor Finances

Keeping up on the financial condition of your company is one of your primary responsibilities as an owner. To do that, you must have accurate information, which requires reconciling accounts and learning to understand financial statements.

H.    Reconciliation

Reconciliation means checking the information in your accounting system with the information received in your bank or other financial account statements. If the transactions match, the information is considered reconciled or in balance, and the financial data is accurate. 

You may not perform the monthly reconciliation, but you should at least review it every month. Look for any categories that seem over or under what you expected. If entries appear as journal entries, check with the person who created those entries. It could be an indication of fraud.

I.       Financial Statements

Every month, you should review your company’s three primary financial statements:

• Profit and loss statement (P&L)
• Balance sheet
• Cash flow statement

These items should be reviewed after your month-end reconciliation. Schedule time with a professional who can help explain how to use them.

4.  Failing to Secure Data

Entering data into your accounting software doesn’t mean you can throw away receipts, documentation or other financial records when you are done. You need to keep these items to use as supporting documentation in case of an audit or to verify data.

J.       Store Records

Copies of financial information that support the accounting entries should be stored in a safe location for a minimum of seven years. Whether you maintain paper files or digitize them, make sure you can easily retrieve them in case of an audit. It is a good idea to file your documents regularly; otherwise, the task will become overwhelming.

You can learn more about storing your tax records here.

K.     Backup Data

Backing up your accounting data should be performed daily. To be sure you have an accessible copy of your data, store your data in the cloud or at another offsite location. That way, a hardware or software failure won’t erase your important accounting information.

Running a business can be rewarding, especially if you have knowledgeable resources to help. At Lutz, our mission is to ease your mind and invigorate your success. Feel free to contact us if you have questions or need accounting assistance.

The sweeping tax changes that were implemented in 2018 signaled a seismic shift in the way individuals paid taxes. However, there aren’t many changes coming for you this year. The IRS rules for 2019 are more of the same, with a few tweaks here and there.

A Quick Review of Major Changes From The 2017 TCJA

As you gather your tax documents to take to your accountant, it’s important to review some of the key changes of the Tax Cuts and Jobs Act (TCJA) and how they affect the majority of wage-earning Americans.

• Increased Standard Deduction–married filing joint increased to $24,000, and single filers bumped up to $12,000.
• Real estate and local tax deductions capped at $10,000
• Personal and dependent exemption (around $4000) repealed
• Coverdell and 529 accounts can be used for education from kindergarten through college, instead of just college
• Mortgage interest payments deductible for up to a $750,000 mortgage, down from $1.1 million
• Medical expenses are deductible in excess of 7.5% of Adjusted Gross Income (AGI), down from 10%
• Capital gains, dividends, and Alternative Minimum Tax (AMT) all decreased, based on tax bracket and indexed for inflation
• Decrease of penalty tax for failure to comply with the Affordable Care Act (ACA).
• Elimination of casualty loss or theft – damages no longer deductible unless the area was part of a Federally recognized disaster area

Tax Tweaks For 2019

These changes to the individual tax code are scheduled to expire in 2025. Only the overhauled corporate tax structures are permanent. Even so, there are some changes for 2019.

• The standard deduction increases a bit – up to $12,200 for individuals and $24,400 for married couples filing jointly.
• The penalty for failure to obtain health insurance is repealed–if you decide not to buy health insurance, the IRS won’t charge you for it. However, some states are penalizing individuals for not buying health insurance.
• Medical expenses are more difficult to deduct. The AGI floor bumps back up to 10%–if your income is $100,000, you have to spend more than $10,000 to get any of those expenses back. If you had $12,000 in medical and dental expenses, you could deduct $2000.

Big Changes To Alimony Reporting For 2019

Prior to 2019, alimony payments were an almost zero-sum game for the IRS – the paying ex-spouse got to deduct the payments from their income, while the receiving ex-spouse paid taxes on the income. The receiving spouse was generally in a lower tax bracket, thus lowering the aggregate taxes for both parties.

The alimony deduction for the paying ex-spouse has been eliminated. That person must claim those payments as income. Also, the ex-spouse receiving the money no longer claims the income. This is a boon to the IRS as the paying spouse is typically in a higher tax bracket.

Business Deduction Changes For 2019

There are also some changes to business and pass-through taxation. Here are some of the highlights.

Qualified Business Income (QBI) Deduction

• QBI applies to the owners of sole proprietorships, partnerships, S-corps, and LLCs.
• Section 199A (net amount of income, gain, deduction, and loss) allows up to 20% deduction.
• Also applies to trusts, estates, and individual taxpayers
• The maximized deduction could provide a top marginal tax rate of 29.6% (80% of the top 37% marginal rate)

Talk to your CPA if you have questions on this law.

Pass-Through Provisions

The maximum business loss for couples is now $500,000, and excess losses can be carried forward. Separate business activities are to be analyzed accordingly.

Expenses, Depreciation, And Deductions

Qualified property placed in service between 9/17/17 and 1/1/23 is eligible for 100% Bonus Depreciation, with the following step-down amounts, through 2026.

• 80% in 2023
• 60% in 2024
• 40% in 2025
• 20% in 2026

Section 179 expensing guidelines have implemented these changes.

• Expense amount limited to $1,000,000
• Phase-out threshold listed to $2,500,000
• Qualified real property eligibility has expanded to non-residential real property, including roofs, HVAC systems, and security and fire protection systems.

The IRS has disallowed some of the perks of business ownership, eliminating deductions for entertainment, recreational activities, and membership dues. However, you can still write off the company Christmas party and other team building activities for employees at 100%.

Despite the goal of simplification, completing your income taxes is still a task best left to the professionals. Lutz is here to help you with all the aspects of your financial life, from retirement planning to filing your tax returns.