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4 commonly overlooked accounting issues small businesses must address

Posted by Grace Townsley

May 12, 2022    |     4-minute read (631 words)

Small business owners have a lot on their plates. If you’re running a business with a small team, you’re probably busy managing, marketing and filling half a dozen different roles at once. That’s why it’s so easy to overlook simple accounting issues— until it’s too late. 

Before you owe a hefty tax bill or miss out on potential tax benefits, read about four commonly overlooked accounting issues small businesses miss: 

Self-employment taxes

If you’re self-employed, you may be liable for self-employment tax. This is a 15.3% tax added on top of the federal and state taxes you also pay. No tax is automatically withheld from your income, so it’s up to you to save for this upcoming bill. As a rule of thumb, plan to set aside about 30% of your income to cover taxes and CPA expenses. 

Some self-employed individuals can set up their business in such a way that they’re exempt from self-employment tax. There are other costs associated with restructuring your business or using a structure other than a sole proprietorship or an LLC, so it’s best to consult with a tax professional about reducing this self-employment expense.

Adding yourself to your payroll

Many sole proprietors and LLC owners pay themselves directly out of their business’ earnings. But adding yourself to your payroll as an employee can come with specific financial benefits. Some business structures can benefit from a tax deduction based on how much they pay out via payroll. If you pay yourself through a check or funds transfer, which are considered distributions, you could be missing out on these payroll deductions. 

Your tax professional can help you determine if becoming a W-2 employee of your own company will offer a substantial tax benefit. 

Paying your estimated taxes on time

Most small businesses should be paying estimated taxes every quarter. These payments are generally based on how much you expect to earn in the calendar year, how much you paid in taxes last year, and what your expected deductions will be. 

If this estimated tax payment is late or missed altogether, your business can be in for some painful tax penalties. But by paying on time, you can better manage your cash flow and save your business from a large tax bill next year.

Keeping track of your expenses and receipts

No one wants to think about getting audited. But if that dreaded day does come, having detailed and organized expense records will make the process considerably easier. The sooner you create a system for tracking your expenses and saving your receipts, the sooner you can rest easy, knowing you’re prepared to face an audit. 

There are a variety of tools out there that help small businesses keep track of their physical and virtual receipts. Make a habit of requesting a virtual receipt whenever possible. Your employees can forward all virtual receipts to one email account for easy organizing and tracking. For paper receipts, go paperless with a photo-capturing receipt software that allows your employees to snap a picture and upload their record in under 30 seconds. There are numerous free and paid apps that capture the info printed on a receipt and plug it right into your accounting software or a simple report. 

Key takeaways

When it comes to managing your small business, the last thing you need is a complicated audit or costly tax bills. Carefully managing your accounting from the very start is one of the best things you can do for your business’ ongoing health, efficiency and growth. And while you can handle several accounting tasks on your own, it’s always smart to bring in tax and accounting professionals as soon as possible to ensure you’re operating at peak performance. 

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