Common Bookkeeping Mistakes People Make
Bookkeeping is a necessary process when it comes to accounting, which in turn connects to taxation. There are some processes of bookkeeping used to create simpler systems that would make tax season quite bearable. Tax season is generally quite hectic, and getting your documents in order at the last minute can be challenging.
Good accountants and bookkeepers spend time teaching their clients the process of bookkeeping or at least training them to be in the position to keep their accounts and other information in proper order. The primary reason is to create a better system to sort through accounts while approaching tax season or during it. We also learned that many people generally get in touch with their accountant or bookkeeper and tell them to sort through the process. Most of them do not understand the bookkeeping process, so the process becomes significantly more challenging.
Additionally, to assist with the process, we found that people generally pick random accountants without doing research. We created a system to assist by highlighting the most common mistakes made when accounting and bookkeeping and how to avoid them moving forward.
1. Not carrying out adequate reconciliation of bank accounts
Many companies do not have a proper, regular, and timely reconciliation of their bank accounts. Banks do make mistakes, and reconciling would help find those mistakes sooner rather than later. Banks have instituted a time limit to correct errors. Some bookkeepers reconcile several times a month to catch these mistakes. If people do not keep a check on their books or follow a random system when it comes to reconciling their books and account statements, it would be challenging for the bookkeeping team or accountant to get the information they need. There are ways to avoid these issues if they pay attention to the process and work through it properly.
2. Failing to review tax-deductible items carefully
A careful review of tax-deductible items can help get the best deductions on your business or personal tax return. If an item is questionable to you, ask your accounting team about it when possible. Do not wait until the end of the year. Planning is always the best option. Every item in the books is not the same, and some are more important. For instance, some items can assist when it comes to a tax rebate or some benefit by lowering their tax slab, and if they fail to mark them out or have someone systematically look for them, they would significantly miss out.
3. Leaving errors for the IRS to find and correct
Fixing errors before filing your taxes is always the best choice. Do not leave it for the IRS to find and correct them. If they make and implement all the necessary changes, it should reduce the possibility of an audit. If there are issues with the books or items, incoming amounts, or purchases that are suspicious, there is a likely possibility of an additional audit and the IRS might want to review the books again. There is nothing wrong with an audit; it is just an additional task and burden to get through. If everything has been appropriately and each amount accounted for, it makes sense that they would assume that everything matches their requirements and they get through the process.
4. Not reviewing your books and accounts frequently
We recommend a monthly or quarterly review of your books to help you guide your business decision-making to be more profitable. It also helps plan for the end-of-year taxes and prevents any unwanted surprises. Although tax season takes place once a year, and in most cases, they can file taxes then. However, it makes sense to work with people where they review these changes regularly. Going through accounts and bank statements with expense records from a year ago can be challenging. If they find a system where they make changes themselves or learn to review the changes every month or quarter. Yes, they would be spending a little time but save time overall, so they do not have to rack their brains in the long run. They would also be prepared for tax season and would be able to get through these small requirements and entries.
5. Doing your own taxes and accounting
Doing your income taxes is usually not the best idea. Professional tax preparers attend seminars annually to stay updated with the latest changes in tax laws. The law changes regularly, and while accountants and bookkeepers have to stay updated with these changes, the general public does not. With the massive changes that take place, trying to handle your taxes yourself might not be the smartest because they could end up losing more instead of gaining. If there are errors, they could pay fines and penalties, which would be an unnecessary issue.
Accountants and CPAs are professionals who deal with accounting and tax issues every day. When it comes to sorting their accounting issues, people prefer saving a few bucks and working on meeting their accountancy requirements themselves. They should seek proper advice for better results, especially if they are unsure of the process they have to get through or do not have the best understanding of accounting. People should stop considering working with accountants as a cost but more like a saving because they are likely going to save in the long run.
If you are looking for assistance when accounting and bookkeeping, get in touch with Michael J. Berger and Co., CPA’s LLP. If you are a small or a medium-sized business, we worked with similar companies in the past, so we believe we would be in a better position to assist. We are an accounting or CPA Firm in Long Island, NY, and we have built relations with all our clients, so they are happy to trust us.