Tax season is just around the corner. Are you prepared to take on the responsibility of getting your taxes in order without getting into any trouble with the IRS? Find out what mistakes business owners like you are likely to commit when preparing their own taxes. Here are some of them:
1. Filing for the wrong tax year.
Believe it or not, this kind of slip-up happens. Often, business owners get confused about the date when an expense has been incurred. This is usually the case when they delay their bookkeeping and get pressed for time when sorting their own set of books. On other occasions, this mistake could be the result of passing on the task to someone who is neither trained nor experienced in professional bookkeeping.
2. Irregular bank reconciliation activities.
There are certain tasks that need to be accomplished regularly in order to make bookkeeping effective and accurate. Bank reconciliation is one of them. You need to make sure that every expense and every deposit is recorded in your books, and the best way to do that is to compare what you’ve written down to the statement that the bank provides. When you do this regularly, you are able to easily identify and address items that don’t match up so that you can correct any mistakes and take full advantage of available deductions.
3. Interchanging cashflow and profit.
As a business owner, you have to be clear on the difference between cashflow and profit. The money that comes in from your customers and the money that goes out as you make expenditures to operate your business represents cashflow. As we all know, it’s important to have a positive cashflow, as that is a good indication that your company is healthy. However, you should note that cashflow is not the same as profit. Profitability is a measure of whether you are making more from the sale of your service or product than you spend in bringing it to market. You may be profitable, but if the cash isn’t in hand then you can still have a negative cashflow.
There really is more to tax planning than meets the eye. While it may seem feasible to take charge of preparing your own taxes, the truth is that you could easily fall prey to time constraints and lack of technical expertise in tax planning. To get that problem out of the way, the best course of action is to seek the advice of professionals.
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