Small Business Bookkeeping

By: Jim McClaflin, Director at Washington State Society of Enrolled Agents (WSSEA)

What we see in the tax business are small businesses that are running a profitable business but their bookkeeping processes don’t hold up under an IRS audit. When you have difficulties proving your income and expenses to the IRS you then have to in essence recreate the business’ books properly. This is expensive for the owner(s) as this type of bookkeeping comes at a premium cost. Audits are normally done years after the tax return is filed and it is difficult to remember all the details of your business transactions, which could result in unallowed deductions or additions to business income.

Here are a couple of common stumbling areas for small business bookkeeping that we frequently see:

  • Combining personal and business accounts. There is nothing illegal about doing this, but it greatly complicates an audit and brings your personal accounts into the audit process. If you sell a personal car on Craigslist and that income goes into your personal account which is included in the audit, then you have to prove that the sale of your personal car was not business income. In an audit the IRS will go through every single deposit and you have to show that it was not business income. Personal expenses paid out of your business account can be identified as an owner’s draw, however an excessive amount of personal expenses will cause the auditor to question if some of the business expenses are in fact personal in nature and not deductible. For LLCs and Corporations this starts to breakdown the legal distinction between the person and the company.
  • Not keeping invoices or receipts. Several businesses use their credit card statements that show where the purchase was made as their method of proof of a business expense. This is not a fool proof plan. In a Washington State audit if you have made a purchase over the internet the credit card statement will not show if you paid sales tax. In an audit if you can’t prove via an invoice that you paid the sales tax, then you will be required to pay use tax (the same rate as sales tax). Since I run a tax business a purchase from Staples would logically be a business expense and accepted in an audit, however a purchase from Lowes would be questioned and I’d likely need to show an receipt proving that what I purchased was needed for the business. The best plan it to scan in all your receipts and write any notes about the purchase on the receipt or invoice.
  • Not using a professional bookkeeper.  Bookkeeping seems pretty easy to do, until it isn’t. A professional bookkeeper is a cost effective method of keeping your business records straight. At the very least have a professional set up your books and show you how to make the entries correctly. Going back to fix the books is incredibly frustrating and time consuming for a business owner. A professional will also bring other accounting/tax knowledge to your team besides just the books themselves.

Learn more at: http://wssea.org

24 thoughts on “Small Business Bookkeeping

  1. Thank you for another great article. Where else could anyone get that type of information in such an ideal way of writing? I have a presentation next week, and I’m on the look for such information.

  2. My spouse and I stumbled over here coming from a different page and thought I should
    check things out. I like what I see so i am just following you.
    Look forward to exploring your web page repeatedly.

  3. Good post. I study something more challenging on completely different blogs everyday. It is going to all the time be stimulating to learn content material from different writers and practice somewhat one thing from their store. I cgddkbdbdecgekce

  4. Pretty section of content. I just stumbled upon your website
    and in accession capital to assert that I get in fact enjoyed account your blog
    posts. Anyway I’ll be subscribing to your augment and even I achievement
    you access consistently fast.

  5. When I originally left a comment I seem to have clicked the -Notify
    me when new comments are added- checkbox and
    from now on each time a comment is added I receive four emails with the exact
    same comment. There has to be a means you can remove me from that service?
    Thank you!

  6. Great article! This is the kind of information that are meant to be shared around the internet.
    Disgrace on the search engines for now not positioning
    this put up upper! Come on over and seek advice from my website .
    Thanks =)

  7. Greate pieces. Keep posting such kind of info
    on your blog. Im really impressed by your site.
    Hi there, You’ve done a fantastic job. I will definitely digg it and for my part recommend to my friends.
    I’m confident they will be benefited from this site.

  8. Howdy just wanted to give you a quick heads up and let you know a few of the pictures aren’t loading properly.

    I’m not sure why but I think its a linking issue. I’ve tried it in two different internet browsers and both show the same results.

  9. I’m extremely impressed with your writing skills as well
    as with the layout on your blog. Is this a paid theme or did you modify it
    yourself? Anyway keep up the excellent quality writing, it’s rare to see a great blog like this one nowadays.

  10. Its like you read my mind! You seem to know a lot about this,
    like you wrote the book in it or something. I think that you could do with some pics to drive the message home a little
    bit, but instead of that, this is great blog. A fantastic read.
    I’ll certainly be back.

  11. My partner and I stumbled over here different web address and thought I might as well check things out.
    I like what I see so i am just following you.
    Look forward to exploring your web page yet again.

  12. Hello, i think that i saw you visited my site so i came
    to “return the favor”.I’m trying to find things to enhance my site!I suppose its ok to use some of your ideas!!

  13. Hey! I could have sworn I’ve been to this blog before but after reading through some of the post
    I realized it’s new to me. Nonetheless, I’m definitely glad I found it and I’ll
    be bookmarking and checking back often!

  14. Hello there, I discovered your blog by way of Google whilst looking for a
    related topic, your site got here up, it looks good. I
    have bookmarked it in my google bookmarks.

    Hello there, just turned into alert to your blog thru Google, and found that it’s truly informative.
    I am going to be careful for brussels. I’ll be grateful when you proceed this in future.
    Lots of folks will be benefited out of your writing. Cheers!

Leave a Comment