A recent survey reveals the top mistakes accountants see their small business clients make—learn how to avoid the most common traps.

A recent survey by Xero revealed that the most common misstep small businesses make on their taxes is failing to keep their financial records up to date. The second most common error is a general failure to understand their tax obligations.

Many small businesses don’t meet with an accountant regularly, and some wait until tax time to consult with one—by that time some of their problems may have compounded.

  • 63% of accountants say that small business owners should be preparing for tax season all year long.
  • 42% of respondents suggest small businesses should meet with an accountant at least monthly.

What sort of mistakes are small businesses actually making? The accountants polled were asked to pick the most common action that triggers an audit, and the top 3 actions cited were:

  1. 43% - excessive income deductions
  2. 27% - improperly identified workers (e.g. labeling an employee as a contractor)
  3. 11% - home office deductions

The accountants were also asked to state the most overlooked deduction, and the top three responses were:

  1. 34% - out-of-pocket costs (expenses accrued by an individual directly related to their employment or business)
  2. 20% - depreciation (a drop in property or asset value due to deterioration, wear and tear, etc.)
  3. 14% - car expenses (if a car is also used for personal purposes, be sure to record the mileage used for business purposes)

These findings help emphasize the importance of not only being careful when filing taxes, but planning for tax season throughout the year and seeing an accountant regularly.

Business owners are stressed enough, they don’t need the fear of an audit or even tax fraud hanging over their head. See here for more tips on getting organized for tax season.

Sources: Xero, AccountingWeb

Article by Rochelle Bailis