Mistakes happen. I wish I could tell you that after 15 years of being an accounting professional mistakes become less frequent, but it’s not true. In fact, I could argue that the more I grew, the more mistakes I made. What helps me mentally push through a mistake is taking each as a new learning opportunity. Training, instead of mistakes, is how I teach my team. A screw up is painful, but it’s a wasted opportunity should you not grow and learn.
When it comes to business deductions, I’ve seen plenty of mistakes over my career, having worked at 4 other firms prior to forming CPA Enterprises, P.C. My desk has seen a lot of eye opening deductions I would never advise. For example:
- Do not try to deduct non business-related expenses. The 2nd firm I worked at taught me everything an accountant needs to learn to be successful. Bookkeeping, tax returns, businesses, partnerships and individuals, payroll, and sales taxes; I learned it all, including what NOT to do. I’ll never forget the year one of my clients convinced my boss to allow him to deduct his $300,000 wedding; no joke, I saw the transactions and coded them to OFFICE CHRISTMAS PARTY! True story. Don’t do that!
- Do not commingle personal and business-related income and expenses. If a business commingles their personal expenses with their business expenses, they are exposed to have their corporate veil pierced. This means the corporate structure and protection of their business is eliminated, and they are exposed to huge tax consequences. When it comes to your business credit card and bank account, keep it professional. That means when you’re grocery shopping, keep the business card in your wallet. Doctor co-pays are another one I see a lot of – do not do that!
- Do not forget the importance of having up-to-date financial statements. I know plenty of accountants who suggest that business owners keep their receipts in case of audit, and I’m not here to tell you that’s poor advice. My problem with suggesting that to my clients is that it takes a lot of time, effort and energy. It’s not the process; there’s plenty of software programs available that offer expense cataloging. For me, it’s about the why. Why are we keeping the receipts? “Well, in case of audit, of course.” My question is, then, how many audits are there a year? “For small businesses, hardly any, if at all.” So if the only reason I’m keeping these receipts is in case of an audit, and if you’re telling me the chance of audit is super low, then why do I have to think about this all the time? My point is that you don’t. At least not from a perspective of compliance. Yes, you need to follow the law, and if there’s an audit, you will need to provide supporting documents. My point is, those supporting documents, at least in my career, have all been substantiated by providing bank statements, credit card statements, and an organized set of financials on which an auditor can easily rely. Stop worrying so much about receipts, and focus on having up-to-date financial statements throughout the year.