Small Business owners often wear many hats: owner, manager, HR, accountant/bookkeeper, recruiter, marketing manager etc. While all of these roles are important, bookkeeping and payroll are two that can cost a business a lot of time and money if and when mistakes are made.
As a tax preparation, bookkeeping and payroll company, we’ve seen it all! When we take over the books for many of our clients, we often find mistakes made that have been costing the business money – or have the potential to be a big problem down the road. Here are some of the most common bookkeeping and payroll mistakes.
Not keeping expenses separate
One of the biggest bookkeeping mistakes business owners make, is to intermingle business and personal expenses. It is very important to have a separate bank account for the business and to make sure all business expenses are paid from that account and all business revenue is deposited to that or another business account.
Not maintaining proper accounting documentation
Every expense for your business should be documented and there should be a filing system in place. Many times, business owners lose track of receipts or bills, or their filing system is inadequate.
If you are not familiar with the way accounting works, reconciliation can be confusing. Many times, accounts receivable and accounts payable for bank and credit card accounts have not been properly reconciled.
Not keeping data entry up to date
Here’s where you can lose hours of time: when you don’t make a habit of keeping data entries in your accounting system up to date. Pushing it off until later can result in errors and many hours of entering data.
Not filing and paying on time
Not filing and paying Sales Tax liability, or business license and personal property taxes timely is another big mistake. Not meeting these deadlines can be detrimental to your business.
Misclassifying full-time employees
Business owners often misclassify full-time employees as salaried when based on their duties and responsibilities they should be classified as hourly and paid overtime for hours worked over 40 per week.
Not separating payroll tax withholding money
Another major infraction would be to use money withheld from employees’ pay for taxes to pay business expenses. Payroll tax withholding money must be kept in escrow until it is time to submit the funds withheld for payroll taxes to the IRS and other taxing authority.
Confusing employees with sub-contractors
You should be familiar with what qualifies a person an employee and what qualifies them as a sub-contractor. Often times, business owners pay employees as sub-contractors when they don’t meet the criteria. This is against the law and can cost a lot of money in fines.
Not maintaining employee documentation
It’s important to keep a record of employee time cards and other payroll documentation. If you have minors, you must ensure that they are clocking in and out during mandated breaks and that they do not exceed the legal amount of hours worked per week.
Not having tax documentation for employees
There is also required tax paperwork each employee needs to fill out. This includes W4s, VA4s, and I-9s.
You have to pay your payroll taxes and payroll tax liabilities – on time. You should also ensure that you are filing payroll tax reports in a timely manner. These include: 941, VEC, 940, W3/W2, 1096/1099. Even $0.00 returns must be filed by the due date.
As a lean business, it’s often hard to use resources on contractors or employees to do the work you feel you can just take on yourself. These mistakes are easy to make and can be costly to a business in penalties and loss of revenue. If you’re currently making any of these mistakes or feel it’s time to let the experts handle your bookkeeping and payroll, give Peoples’ Tax a call.