Category: Bookkeeping

  • 5 Common Bookkeeping Mistakes every Business Owner Should Avoid

    5 Common Bookkeeping Mistakes every Business Owner Should Avoid

    Running a small business is not easy. With access to limited resources, you have to be extra careful, as you cannot afford to make too many mistakes. Chances are that you tackle almost every process on your own, including bookkeeping. While this works alright for some very small businesses, for most small business owners, it is easy to miss things. Let’s look at the value of bookkeeping and then five common bookkeeping mistakes you must avoid..

    The Importance of Quality Bookkeeping For Business Owners

    Now, you must be wondering, “Do small businesses need to worry about bookkeeping?” The truth is that every type of business, from SMEs to Fortune 500 companies, requires a close eye on bookkeeping. As errors can prove harmful, it is often necessary that you hire a bookkeeper to achieve success. Here are a few of the many benefits of a quality bookkeeper. 

    Budget: A major reason why businesses need professional bookkeepers is they help keep income and expenses organized. This information helps you plan strategies and manage both your business expenses and personal expenses.

    Tax Planning: When the year ends, you might struggle to file your tax return, either on time or with accuracy, due to a lack of access to or enough understanding of your business records, financial statements, bank transactions, and business deductions. Bookkeepers help manage tax time so that you file your return before the deadline and do so accurately.

    Organization: Your lenders, investors, customers, employees, and the IRS have an interest in your financial records. Bookkeeping helps keep financial information organized so that you can provide it to the relevant party if the need arises and so that all your financial records are close at hand to inform you during important decisions.

    Analysis and Decision Making: As we just mentioned above, bookkeeping provides financial statements and all the necessary information needed to make business decisions. You can use the information to analyze strengths and weaknesses, track short-term and long-term consumer trends, see how your investments are performing, spot problem areas early, and uncover opportunities for expansion and new development. 

    Expense Tracking: In order to find out how much profit you are making and if you are even breaking even, you need to keep track of your expenses. Expense tracking also gives you a clear view of all your expenditures, enabling you to see which expenses are yielding fruit and which ones are simply a burden. You can use this information to streamline your spending and find deductions during tax season. This is only possible through good bookkeeping.

    Improved Cash Flow: A more in-depth understanding of every aspect of your cash flow is a must for every business, allowing you to see clearly the overall health of your business and the patterns that led to its current state. 

    IRS Audit: If there is an IRS audit, you must have updated financial records. Otherwise, you could be subject to penalties. Not to mention getting yourself on the IRS’s radar, which keeps them “interested” in returning for more audits later on. 

    business owner trying to avoid bookkeeping mistakes

    Now let’s look at those 5 important bookkeeping mistakes that must be avoided. 

    1. Poor Organization

    One of the most common bookkeeping mistakes reported is poor organization. Without a well-organized system, both for physical as well as updated software for records, copies, financial reports, invoices, receipts, and all other important info, you risk inaccurate or late tax filing, missed savings from deductions, inaccurate data during meetings and a sense that you never quite have the information you need at hand to make strong business decisions. 

    It’s important to implement a proper filing system for your physical files, where everything is always exactly where you need it. Be sure to print regular reports from your accounting software programs and backup computer files in the cloud and on external hard drives to keep things secure. You can also take pictures of receipts and invoices so you’ll always have electronic copies if fire, flooding, or theft takes place. 

    2. Improper Record Keeping

    Another common bookkeeping mistake, this problem has the potential to mess up your whole system and put you at risk for audits and penalties. It is absolutely imperative that you record expenses right away, that you keep track of mileage and travel costs, business equipment, outsourced work, employment expenses, and all other expenses in a detailed manner.

    If you keep ledgers and notebooks, save receipts and invoices, and take time each day to record and file everything without fail. While using accounting software will greatly streamline your bookkeeping, you must still enter all information consistently and look over your reports to ensure accuracy. Don’t procrastinate. And if your bookkeeper has concerns, meet with them right away to reconcile all financial data. 

    3. Failing to Reconcile Bank Accounts

    The next bookkeeping mistake that should be avoided is not reconciling your bank accounts. For starters, you must create separate bank accounts for business activities and personal expenses. Otherwise, expenditures will get mixed up, payroll will become a hassle, taxes and possible deductions will be convoluted, and you may risk an audit. Ensure that each bank statement is reconciled each month, or better yet, on a weekly or daily basis, to identify potential issues early on and take action immediately. 

    4. Not Using Accounting Software

    As we live in a world where technology in some form is necessary for just about everyone, especially those running a business. It’s unwise to overlook accounting software. While there are still some of us who seem to excel at using books and ledgers, utilizing a good accounting software program allows for an extra level of accuracy, accountability, and analysis. 

    5. Forgetting Sales Tax

    A common error in bookkeeping is forgetting sales tax. You must account for it and report it to stay on the right side of the law. Failure to report and collect sales tax would result in your business facing fines and penalties. Make sure to calculate it properly, set it up within your registers, accounting software and other financial records, so that you have accurate reports and tax payments. 

    Conclusion

    These, of course, are only a few of the many bookkeeping mistakes common to business owners. While they are easy to make, the resulting consequences are often hard to undo. Avoid the stress, audits, worries, and confusion of poor bookkeeping practices. If you keep your own books, get some training and guidance from an experienced bookkeeper. And if you feel you’d rather not take a chance, reach out to a professional with considerable experience. 

    Sound Accounts has been helping individuals, and businesses organize their books for years. We provide complete support or exactly the level of service you need for continued success. Contact us today to get started. 

    For quick answers to bookkeeping questions, check out our frequently asked questions below.

    FAQ

    Why is good bookkeeping so important for me as a business owner?

    Timely and accurate bookkeeping keeps you organized, prepares you for tax season, helps you spot money-saving deductions, gives you an in-depth understanding of your cash flow and each area of your business, so that you can see what is working , what isn’t and why this is so. Bookkeeping equips you with the knowledge you need to lead better and make stronger business decisions. 

    What are some common mistakes in bookkeeping?

    Poor organization, filing taxes late, not accounting for sales tax, failing to reconcile your bank accounts, not taking advantage of helpful software and other technologies, not recording expenses and many others.

    What are some of the consequences of poor bookkeeping?

    Poor bookkeeping practices lead to IRS penalties, audits, lost financial data, outdated information leading to unfocused business decisions, poor relations with business partners and employees, underperforming departments and investments, and even legal trouble. 

  • Getting Started with QuickBooks as a Small Business Owner

    Getting Started with QuickBooks as a Small Business Owner

    If you are a small business owner, then QuickBooks Online is an excellent financial management tool. Regardless of the type of business or services you provide, QuickBooks accounting software helps you manage your inventory, payroll, track revenue, print important financial documents, and manage other small business functions with ease. It makes managing and tracking company money fast and simple with a range of smart features. But seasoned business owners know that any software management tool is only as good as the data you enter. In this article, we will go over how to set up QuickBooks quickly. 

    How to Set Up QuickBooks

    The first thing you should do before setting up any type of system like QuickBooks is to set up your company file. With this step, you will also be able to tailor the tools to fit the unique needs of your small business.  Click “Settings” and then “Account Settings” and then fill in the following basic information:

    • Company name
    • Company type
    • Contact information
    • Address

    On this page, you will also have the option to set your marketing preferences for communication with Intuit, as well as managing your cookie preferences. You can always come back to this page to adjust your settings at any time. 

    How to Set Up Your Bank and Credit Card Processing

    QuickBooks Online has an efficient feature that allows you to not just connect with your bank and set up credit cards, but it also gives you access to your bank feed. This gives you access to all your banking and credit transactions and your transactions will be automatically downloaded and categorized. This allows you to have high-level insight into your income and expenses without having to manually enter every transaction.

    To get started select “Banking” and then “Add Account”, and then follow the prompts to select your preferred bank and sign in to that account through QuickBooks Online. You’ll start seeing transactions as soon as they come in, though you do also have the option to download past transactions manually. This can be helpful if you switch banks but want to maintain access to old transaction records, or if you simply want to have an easy place to view everything without having to separately log in to your business bank account. 

    If you do want to take this step and manually download a set time frame of bank transactions, QuickBooks Online has a detailed, step-by-step process that can help you do so.

    business owner using QuickBooks for bookkeeping

    How to Set Up Payments and Invoicing

    QuickBooks Online has an easy process that allows customers to pay invoices online, but it does require some set up on your end. You’ll also need to confirm whether you have the old or new version of estimates and invoices, because how you change the payment options on your invoice will depend on which version you have. You do need to take the time to confirm which version you have so that your payments and invoicing will be set up accurately. 

    Steps for the older version:

    • Click “+New”, and then click “Invoice.” 
    • From the dropdown titled “Customer”, select a customer and make sure their information is accurate. Check the invoice date and change it if needed, using the “terms” dropdown.
    • On the “Product/Service” column, select the appropriate product or service, or add a new one from the “+Add new” option.
    • Fill out the cells for quantity, rate, and change amount, and then select the “Tax” checkbox to charge sales tax.
    • If you wish to send the invoice now, select “Save and send” to email the invoice to your customer. You can also choose the “Save and close” option if you are not ready to send the invoice right away. If you need to print a paper invoice, select “save” then “print or preview.” You also have the option to send your customer a link to their invoice through SMS or a messenger tool, using the “Save and share link” option. From there, select “copy link” and paste the link into your customer’s preferred messenger service.
    • To change payment options on an existing invoice, select “Sales” or “Invoicing” and then click on the “Invoices” tab.Click on the invoice you want to update and under “Online Payments” click Edit. You can then select or uncheck the checkboxes until you have the payment options you want. Select “OK” then click “Save.”

    Steps for the newest version:

    • Click on “+New” and select “Invoice.” To make changes, click on “Edit company”, make changes as needed, and click “Save” when finished.
    • Click on “Add customer” and choose the customer from the dropdown. Verify their info and make changes as needed by clicking “Edit customer info” and clicking “Save and close” when finished. You can also review and edit the invoice date, due date, and terms.
    • If you want to add products and services to the invoice, click on “Add product or service” and select desired items from the dropdown. You can create a new product or service by clicking “+Add New”, entering new product or service information, and clicking Save when done.
    • You can calculate the charge amount by flat rate, hour, or item, by entering quantity and rate as desired.
    • For customized information and design, click on “Manage” and choose options from the side panel, and click “Save” when finished. QuickBooks Online will remember your choices and apply them to existing and future invoices.
    • To send an invoice to a customer, click on the “Receive Payment” dropdown and choose your method of communication. The “Email” option allows you to edit and send an invoice via email. The “Print and download” option will provide a paper invoice. And the “Share link” and “Copy link” options allow you to create a link to the invoice and send it to your customer through SMS or messenger service.
    • Because default company settings display on invoices in the new version, changing your options on one invoice will only save to that specific invoice. To change a specific invoice, select “Sales” or “Invoicing”, click on the “Invoices tab” and then the invoice you want to edit, then click “Edit invoice.” From the “Manage” section, click on “Payment methods” to update invoice payment options or turn on or off ACH or credit card options. Click “Save” when you are finished.

    How to Manage Financial Records and Accounting

    QuickBooks has the option for customized reporting, since it gives a high degree of flexibility. You can choose exactly what types of reports you receive by selecting specific fields, making it easy to track business growth, financial statements, overall revenue, and where your money is going. You may find customizing business reports easier than dealing with large amounts of raw data. But again, your reporting is only as good as the data you enter, but QuickBooks makes it easy to find and enter specific financial data.

    Use the general ledger to manage financial data about your business. For example, it allows you to enter each business expense, assets, liabilities, equity, payroll, business taxes, depreciation, capital improvements, and more.

    Purchase orders allow you to track purchases made against specific products. On the product detail page, check boxes allow you to mark orders as shipped, canceled, returned, etc.

    Inventory receipts show where purchased goods were delivered, while the stock level displays the current quantity of inventory available for sale. Sales orders track all transactions related to one purchase order, while purchase receipts show what has been paid out from an open purchase order.

    To Create a sales order, use an existing quote and enter details about your sale, then create it by selecting “Create New” at the bottom right corner of the screen. If no quotes exist yet, select “New Quote”. Otherwise, choose one from the dropdown menu. Choose whether to ship using FedEx, UPS, USPS, DHL, TNT, FEDEX EXPRESS®, or other shipping methods, and enter the freight costs and sales tax associated with the shipment. View tracking information such as when the package left your business or warehouse, what carrier picked up the package, and more.

    After receiving payment, record the transaction in QuickBooks Online. The Reconciliation Report allows you to see all transactions recorded since the last reconciliation report. Adjustment entries allow you to make adjustments to accounts payable as needed. You can also use Memos to write notes related to payments and credits.

    How to Create Vendor and Customer Accounts

    Depending on your business structure, you may want to create vendor accounts, customer accounts, or both.

    To create vendors, click New/Add vendor. Then select whether you want to add an existing customer, supplier, employee, contractor, or other type of vendor. Enter the name of your business into the field provided and use the dropdown menu to specify the address location, phone number, email address, social media links. When you click Save, you’ll be able to view this new vendor on the Vendor List page. You can easily Edit to make changes to their information or Delete a vendor that you no longer work with.

    To list customers in QuickBooks Online, first log in to QBOP. Enter the first and last names of the new customer, their contact information, and credit card and associated billing address if you have them. If so, you can also specify shipping methods (pickup, delivery, mailbox key, etc.) You also have the option to assign sales reps to customers.

    How to Manage Employees

    You’ll start by creating a user account for each company employee. Enter employees’ personal info including their names, phone numbers, addresses, emails, social security numbers, birthdays, etc. Assign time sheets to each individual employee. Set hours worked per week, number of work days per month, vacation dates, sick leave policy, and holiday schedule. Payroll reports provide detailed information regarding wages earned, deductions taken, overtime earnings, tips, commissions, etc.

    When setting up your employee payroll, you can set pay rates based on hourly rate, salary, commission, bonuses, etc., and calculate taxes owed. Select which tax types are applicable to your business: Federal Income Tax, State Income Tax, Social Security, Medicare, Unemployment Insurance, Worker’s Compensation, and others. Having this set up correctly from the beginning makes it much easier for your, your employees, and your accountant during tax season. And even if you are the sole owner and employee, knowing how you are going to file ahead of time can make the process easier and give you peace of mind.

    For example, if you are a self-employed business owner or have a sole proprietorship, you need to file Form 1040 Schedule SE, Self Employment Tax Return. If you hire contractors, they will receive W2 forms instead of 1099 forms. They should complete these forms and send them back to you via fax or mail. In addition, they must sign IRS Forms 941, Employer’s Quarterly Federal Tax Returns, every quarter. These forms include gross revenue figures, total expenses, taxable income, federal withholding amount, state withholding amounts, and estimated quarterly tax liability.

    If you love what QuickBooks has to offer but are interested in seeing what else you can get out of it with support from an experienced bookkeeper, contact us for a free assessment. 

  • How to Make Your Business Run Smoother with the Right Bookkeeping Strategy

    How to Make Your Business Run Smoother with the Right Bookkeeping Strategy

    One of the most important aspects of running a successful business is having a strong bookkeeping strategy in place. There are many ways to keep books, but it can be difficult to decide which method or combination of methods will work best for your company.

    Approaching your bookkeeping deliberately and objectively is key to your success. No matter what methods or tools you use, the choice to consistently manage your books, keep detailed records, and plan for taxes and important financial decisions, helps you to not only protect yourself against stress, financial losses, and penalties, it gives you a greater understanding of the mechanisms that drive your success in each area of your company. Let’s look at some important options for keeping your books and help you develop a bookkeeping strategy that’s perfect for your business.

    Why a strong bookkeeping strategy is vital for your success

    A strong bookkeeping strategy is vital for any business. Why? Because it establishes a foundation of knowledge that can’t come from anywhere else. The information you gain from keeping your books consistently brings a level of clarity to your decision-making you wouldn’t have otherwise been able to attain.

    It sets a precedent for smart spending, better resource management, and long-term decisions based on hard facts and historical data instead of feeling and guesswork. The right strategy also helps you file your taxes accurately and avoid costly errors and multiple audits. Bookkeeping is far too important to your success to ignore or procrastinate on. You deserve the best for your business and so do your customers and professional partners. Better bookkeeping means better business and greater control of your future.

    bookkeeper working to develop the best bookkeeping strategy

    Bookkeeping Options

    There are many options when it comes to managing your books. Some business owners prefer to do it all themselves, either the classic way with ledgers and notebooks or with excellent software like QuickBooks Online, Xero, or FreshBooks. Others prefer or simply need, because of the size and complexity of their business, to have a full-time bookkeeper in-house. Still, others like to outsource to a professional team or individual, to ensure thorough bookkeeping that doesn’t miss a single detail. And for many, a hybrid approach, combining a mix of these is best.

    Each one carries its own advantages and disadvantages, allowing you to custom-fit the right approach to meet the unique needs of your business. Let’s look now at each one.

    The right bookkeeping strategy for me

    As we’d mentioned above, there’s no one-size-fits all approach to bookkeeping, to your method of accounting. It depends partially on your business model, your available time and resources, and how you want to organize your staff in the best way possible so you can lead and manage better. There are a variety of methods and tools that can be used, and there are benefits and drawbacks for each. The best choice is the one that works best with your business.

    Handling it on Your Own

    If you’re hoping to take care of your books completely on your own, there are some things to be aware of. Handling your own bookkeeping forces you to learn a new skill, a very important one at that. You get to tackle the ins and outs of basic accounting, budgeting, resource management, and financial projections. These are all things every good business owner should master.

    Taking time yourself to go over financial statements, enter financial data and check on other reports from your accounting software develops a sense of ownership in the financial health of your business. You can go old-school and keep a ledger, logs and notebooks, recording everything in well-organized books. Or, for a more comprehensive and helpful solution, getting familiar with online or software-based programs is a great move.

    Still, taking this responsibility upon yourself is often daunting. It means a lot of time spent on accounting tasks and organizing records and less time for other vital management activities. Additionally, because it often isn’t a manager’s primary skill set, they may miss important details, forget to account for something, or lose out on valuable money-saving techniques that professional bookkeepers are trained to spot.

    Taking on all the bookkeeping yourself helps you learn new things and get focused on your finances. But it also might tire you out, cause greater stress, and steal from your time and energy. You’ll also need to learn how to navigate your chosen bookkeeping programs. Software takes time to master and you may need to take a few training courses or get some one-on-one coaching to ensure you understand it completely.

    Resident Bookkeeper

    Keeping an in-house bookkeeper is often an excellent choice for many businesses. With their training, education, and experience, they’ll be solely focused on making sure every aspect of your books are exactly where they need to be. They will organize your finances, keep track of your balance sheet, verify bank statements, prepare you for tax time, create better systems for data and records, and help you make sense of complex or lengthy financial reports to help you make better decisions surrounding budget and resources.

    The upsides of a bookkeeper are many. But this option comes with several costs. You’ll have to pay a salary and benefits to a full or part-time employee, along with establishing a dedicated office for this person with the need for furniture, computer hardware and additional tools like copiers, printers, and more.

    Outsourcing

    One of the best solutions to bookkeeping is outsourcing your needs to an individual or team. This affords you complete bookkeeping support, accurate records, and the knowledge you need to manage your finances more strategically. Professional bookkeeping services bring top-notch industry practices with them, ensuring a consistent level of work day in and day out.

    Also, this is precisely what they do: focus on your books. With in-house bookkeepers, there is often a tendency to take on additional responsibilities, from answering phones and dealing with customer concerns, to placing orders and fielding certain employee matters. With an outside contracted bookkeeper, you’ll get someone entirely dedicated to the work of keeping your finances in order.

    Outsourcing gives you a complete bookkeeping solution without having to pay additional benefits or putting together an office for an in-house department. Outsourced bookkeepers will also work with you to improve your level of organization, preparedness and financial knowledge, which helps you avoid penalties, save money on taxes, and give you the tools needed for better budgeting.

    Hybrid

    Often, companies find that a combination of methods works best for them. A business owner may take care of some things themselves, while keeping an in-house employee part-time, to take care of basic bookkeeping, data entry, and organization. Then, they may contract an outsourced bookkeeper to help with larger, more complex projects, taxes, and making sense of financial reports.

    business owner and bookkeeper working on bookkeeping strategy

    How to leverage your bookkeeping strategy toward greater success

    One of the best things about consistent bookkeeping isn’t merely its tendency toward greater organization and records-keeping, but its ability to enable you to make more strategic financial decisions. Better bookkeeping means a greater understanding of your resources, of each department’s expenses and performance. It gives you not only a micro but a macro view of performance over months and years. This kind of information doesn’t simply help you stay current and save on taxes, it provides you with the information needed to make more specific, more informed choices about the direction of your company. Better bookkeeping lays the foundation for innovation and growth to flourish.

    Too many companies don’t get deliberate enough about their bookkeeping. They’re constantly playing catch-up, entering financial data late, procrastinating on updates and financial reviews, not tracking their expenses consistently, and leaving one of the most important parts of their business to an afterthought.

    Great bookkeeping isn’t simply a maintenance practice. It is a key component of your ability to manage with clarity, and to move your business into its next stages of growth. It should be one of your top priorities. The companies that budget well, stay organized, keep great records and study their financials inside and out, have a much easier time spotting problems, discovering strengths that could be capitalized on,  seeing opportunities that might be available to them, and simply managing their overall business financials with greater success. 

    The right bookkeeping strategy allows you to worry less and spend that energy on core principles of management, like leading, innovating, product development, and customer experience.

    Conclusion

    A strong bookkeeping strategy can help your business run smoother. It can also help you identify important trends so you can make better decisions. But with so many options, how do you know which bookkeeping strategy is for you?

    The key to finding the right bookkeeping strategy for your business is understanding your needs. A good place to start is in talking with an experienced bookkeeper and with business owners you trust who have implemented a strong bookkeeping strategy that is yielding positive results for them. This can help you identify gaps in your current strategy and find the right solution for your business.

    Think about what matters most to you, whether handling some aspects yourself is ideal or perhaps contracting someone to take over to free up your time for other aspects of business. No matter what you choose, it’s important that you take bookkeeping seriously, that your finances become one of your top priorities. After a short while, you’ll see the evidence piling up that confirms how valuable an asset great financial management can be.

    Sound Accounts is your ideal small business bookkeeping partner. For years, we’ve been helping businesses of all kinds find their way out of confusion and into clarity by managing their books so they can manage their business. Contact us today to make a positive change in your company’s bookkeeping strategy.

    Check out our frequently asked questions and answers below for quick information about bookkeeping strategies.

    FAQ

    Why is having a focused bookkeeping strategy important?

    Being deliberate about bookkeeping is one of the strongest things you’ll ever do for your business. It keeps your budget in view, helps you understand how each department is performing and where they can improve, lets you spot possible weak spots early on, gives you a deeper view of profitability and expenses, and equips you with the information you need to make decisions that have the potential to drive your business forward.

    How do I know which strategy is best for me?

    Whether it’s handling all your own bookkeeping yourself, keeping a full or part-time in-house bookkeeper, outsourcing to a great individual or team, or mixing these for a hybrid approach, make sure to choose a method that removes, instead of adds, stress to your life. Choose a strategy that gives you a clear interpretation of your financial data continually, so you can make business decisions with greater confidence. Choose a strategy that provides the maximum level of tangible benefits while remaining affordable enough to justify any costs involved. Other factors that go into this decision are the type of business involved, number of employees, and your available time and resources. You can discuss bookkeeping possibilities with an experienced bookkeeper, accountant, and other business owners. 

    What happens if I don’t have a clear bookkeeping strategy?

    Leaving your bookkeeping to an afterthought, full of procrastination, disorganization, and inconsistency leaves you vulnerable to poor performance, waste, tax penalties, audits, miss opportunities and investments, and the eventual failure of your business. Missing this key step can take a great business idea and give it over to a bad business plan. It’s not something you ever want to ignore, but one of the most vital components of your business. 

  • How to prepare for a small business tax audit

    How to prepare for a small business tax audit

    A small business tax audit is a common and unwelcome surprise for many business owners. Preparing for one can be difficult, stressful, and time-consuming. But, it shouldn’t be. If, as business owners, we are completely honest in our reporting, keep meticulous records, detailed expense reports, organize all receipts and payment slips, and log all related activities thoroughly, we can avoid most of the headache.

    It’s important to stay in compliance with the Internal Revenue Service (IRS). If you don’t comply, you may end up paying more in taxes or even owe additional penalties and open yourself up to future audits. No one likes an audit. But with these tips, you’ll be prepared for the possibility and ready to navigate your audit with confidence.

    Why am I being audited?

    The reasons that might trigger an audit for your business can vary. The IRS looks at several factors when making sure your business is accurately filing and paying taxes. Here are some of the most common reasons:

    • Claiming excessive deductions for things like meals and entertainment or other questionable expenses.
    • Filing and paying your taxes late repeatedly.
    • Sizeable reimbursed business expenses.
    • Abnormally large charitable contributions
    • Claiming 100% use of a company vehicle
    • Running a cash-intensive business
    • Claiming losses for several years in a row

    Remember, auditors can look back as many as six years into your business records. Keep records for each year organized by year and category and stored in secure waterproof and preferably fireproof containers. Back up computer files on the cloud and external hard drives so no information ever gets lost.

    business owner and bookkeeper preparing for a small business tax audit

    Be honest

    The first and most important step in preparing for a small business tax audit is to be honest. Just like with your personal income, honesty is indeed the best policy. Many people try to fudge numbers, exaggerate expenses, under-report income, or rely on guesswork for certain items. This sends up red flags for the IRS to come looking and sets a terrible precedent for inaccuracy and falsehood in your business dealings, something that has far-reaching consequences in many areas of life, not only your finances and reputation, but in your relationships as well.

    What items should I bring to a small business tax audit?

    When you receive notice of an upcoming tax audit, it is important to put together all necessary documentation. This includes all receipts, billing records, documents on purchases, income statements, payroll records, expense reports, and all other related documentation. Here is a short list of items to bring to a small business tax audit.

    Bank Statements, Receipts and Canceled Checks

    Your auditor will want access to all bank statements, for both personal and business accounts, all receipts related to every kind of payment or expense, and any canceled checks, invoices, or sales slips. If you pay cash for some expenses, save all paperwork, including notes, receipts, and cash vouchers.

    Books and other Physical Records

    If you keep formal bookkeeping and accounting records like ledgers and notebooks, your auditor will request these. This isn’t required by the IRS, but it can save you time and help keep you organized. If your systems are a bit less formal, like boxes of register tape and a checkbook, make sure these are on-hand, complete and in chronological order beforehand.

    Electronic Records

    If you do your bookkeeping primarily on a computer, either with software or cloud-based applications, you will need to provide the auditor with full access to all information through printed reports for anything they request. Make sure you’re doing everything you need every single day to keep your electronic records accurate and up-to-date.

    Appointment Books, Schedules, Diaries, and Logs

    These items will provide verification of your business appointments, meetings, travel, and other professional activities for which you might incur business-related expenses. Most of the time, business owners plan on claiming certain deductions based on expenses like travel, meals, lodging, auto, and more. Keeping as much information as you can, which verifies your expense claims, will help you both save money during tax season and move through the audit process with greater ease.

    Keep Detailed Records & Stay Organized

    We’ve discussed keeping all documentation and having it ready. However, in addition to having ready access to these, it is important that the information is complete and detailed. Document all income and expenses daily so you can easily account for them.

    For example, try to be as specific as possible with your logging activities. If your business accepts cash, include the date, time, location, and who the transaction was with on your log sheet. If you accept credit or debit cards, then keep records of these transactions as well.

    Keep invoices with every purchase made. This includes any furniture bought for your office space or supplies purchased for your factory. These receipts should be filed away neatly in order by date with corresponding details listed on them (i.e., vendor name, total cost of item/purchase, additional notes or arrangements).

    Make sure to keep detailed records of both personal and business-related items. For instance, if you use your business credit card (with its company logo) for personal purchases like clothes or gasoline; keep those receipts. You will need to report this expenditure during the audit process because it’s considered a “double deduction.”

    Be sure to carefully log all mileage driven by employees who are using their car for work-related purposes. Mileage logs must account for every mile claimed and should include dates and destinations. Consider keeping a log or book of appointments and schedules and notes about each one. This will let you link certain travel times and expenses with their corresponding events and meetings, allowing you to account for each mile or travel expenditure.

    Report All of Your Income

    No matter what kind of business you run, it is vital that you are reporting all income, both your own income/salary/bonuses, along with all employees and partners. Also, make sure records are precise when reporting revenue and profit figures for your business. Mistakes in these areas can cost you money, time, and credibility. Concealing any income will only come back to haunt you later, and may interfere with your ability to continue conducting business.

    If you are self-employed, don’t forget about income from other sources, too. If you sell items on eBay or work gigs for friends, for example, list these on your tax return. The IRS has a multi-step process they ask people to follow in order to report all income accurately. These steps include:

    1) Collecting all of your receipts and organizing them by category

    2) Deciding what needs to be reported on the calendar year or fiscal year

    3) Adding up the total amount of expenses incurred

    4) Determining what type of business you are conducting (sole proprietorship, partnership, corporation)

    5) Figuring out if you have any special considerations like depreciation or itemized deductions

    6) Reporting all of this information correctly on your tax form

    Review your Expenses

    Expenses are a major part of a small business tax audit. In order to pass an audit, you should review your expenses to ensure that they are all accounted for and that you have the right documentation. The IRS will want records for every expense throughout the year. Make sure you label each receipt with the date, type of expense, and how much was spent.

    You can use a spreadsheet or an online expense tracker to keep track of your expenses throughout the year. You might also find it valuable to keep a paper copy in your office as well as a digital copy on your computer or phone. You can never be too prepared when it comes to both business accounting and taxes. If you’ve been keeping receipts in a shoe box for years, now is a good time to organize them so they’re easy to find when it comes time for an audit.

    Documentation is key to passing an audit, so make sure you save all receipts and documentation related to these expenses for at least six years after the date of purchase or last activity. That way, if there’s ever any question about what’s deductible, you will have everything you need on hand.

    Understand Your Tax Code

    One of the best things to do before a tax audit is to gain an understanding of your tax code. You can visit the IRS website or ask your accountant to help you identify which tax code category your business falls under.

    There are four categories of business tax codes: Sole proprietor, partnerships, corporations, and S-corps. Sole proprietorships are taxed as if the owner is running their personal finances through their business. Partnerships are taxed as if there were two entities with one entity providing services and one entity receiving services. Corporations are taxed on the corporate level before any distributions are made to shareholders. And S-corps pay taxes on both the corporate level and at individual shareholder level after money is distributed to them by the corporation.

    It is always wise to consult with a professional when needed, especially when preparing for an audit, or when you simply want greater organization and more control of your own bookkeeping. They can save you from costly mistakes and penalties and further headaches down the road.

    Plan for the Unexpected

    It is good advice for any area of life. We often only plan for trials when they are thrust upon us. It is far better to stay organized and prepare for eventualities ahead of time. This is why we purchase insurance for our homes, our cars, our businesses and ourselves. 

    This is why we put up fences for security and a better roof for weather protection. Planning ahead when it comes to taxes and audits is a smart move. It will not only prepare you for your interactions with the IRS, but ensure that your bookkeeping is done with precision every single day.

    Conclusion

    There are many things to think about before your audit, but the most important are honesty, staying organized, keeping detailed records, and knowing your tax code. Audits may not be comfortable, but they don’t have to be something that completely throws us off track. The key is to think ahead, plan long-term, and operate your business and finances transparently and honestly. And never hesitate to connect with an experienced professional for help with your regular business bookkeeping needs, along with special help before and during an audit.

    Sound Accounts is your all-in-one bookkeeping and payroll tax partner. We’ve helped businesses of all kinds manage their books successfully and make better decisions with increased awareness of their finances. Contact us today to get the help you need right when you need it most. 

    For answers to questions about small business tax audits, check out our frequently asked questions below. 

    FAQ

    Why is my business being audited?

    Reasons for an audit vary widely from business to business. Yet, the most common include Claiming excessive deductions for things like meals and entertainment or other questionable expenses, filing and paying taxes late, sizeable reimbursed business expenses, large charitable contributions, claiming 100% use of a company vehicle, running a cash-intensive business, claiming losses for several years in a row, and other reasons. 

    What should I remember when preparing for an audit?

    First, be honest about everything, your income, expenses, profits, contributions, wages, and every other financial matter. This will keep your business above board and ensure you don’t run into trouble with the IRS. 

    Throughout the year, keep detailed records of everything, if possible, both in hard copy as well as on the computer or in the cloud. Make sure to have full access to electronic accounting files, receipts, expense reports, invoices, payroll, checkbooks, ledgers, notebooks, bank accounts and any other financial reports or pieces of accounting evidence for up to six years back from the current year. 

    Can bookkeepers help me with an audit?

    Yes, definitely. Bookkeepers and accountants are not only helpful when preparing you for your audit, since they are deeply involved with your bookkeeping from day to day, but they are able to get you organized and up-to-date on everything so you have a much better chance of not being audited in the first place. 

  • 7 Hidden Costs of In-House Small Business Bookkeeping

    7 Hidden Costs of In-House Small Business Bookkeeping

    If you are like many small business owners that do their own bookkeeping, then you may never have considered the hidden costs that come with it. Bookkeeping is often seen as a “necessary evil” and something that can be easily outsourced to an expert.

    Certainly, there are times when handling your own books or having a dedicated staff member to do so makes sense, especially if you only have a few employees, if it’s just you or you have plenty of time to focus on it and feel comfortable with accounting software and financial analysis. However, if your business is growing or you have several factors to consider, like more employees, several departments, or you need greater clarity and understanding from your financial reports so you can make more informed decisions, you may want to consider outsourcing to an experienced accountant. Here are 7 costs business owners sometimes forget to factor in when deciding to keep their small business bookkeeping in-house. 

    business owner handling his own small business bookkeeping

    4 Costs of Handling it Yourself

    Time & Freedom

    These two go hand in hand, time and freedom. One leads to the other. If you’re taking care of your business bookkeeping on your own, this is especially true. You work hard to manage your resources, your people, and your products and services, and of course, your customer interactions.

    This often throws accounting to the back burner, the end of the day, or pieced out here and there between other things. This means that one of the most vital processes to your long-term success is never given the attention it deserves. Active, consistent accounting not only keeps your finances in order, but helps you make better decisions for the future of your company. And don’t forget, more time spent on accounting for you means less time for every other part of your business.

    Also, if you are pouring a lot of time into it, that not only means less time for other management activities, but less personal freedom. Having to fit in accounting on top of everything else can cut into meal times, take you away from family gatherings and events, and steal opportunities for engaging in the activities you love.

    Accuracy

    Accuracy is important in every aspect of your business, but especially in your finances. Maintaining proper records of all expenses, handling payroll, and paying your taxes on time and properly, is something that can’t be taken lightly.

    If you’re new to bookkeeping, aren’t comfortable with it, or too tired to fully engage with it, mistakes become more common. Errors in finances lead to missed tax savings, audits, missed opportunities for growth and investment, and poor resource management.

    Software

    Accounting software is phenomenal these days. With time-tested favorites like QuickBooks or newer ones like Xero, there are several programs offering comprehensive accounting management and a range of tools that cater to every kind of business. These programs enable you to manage cash flow, business expenses, payroll taxes, balance sheets, and other accounting tasks required of you as the business owner. 

    It’s important, though, that you take both your business finances and learning your accounting software seriously. Make time to learn your program completely and familiarize yourself with every feature that might save you time and money, and allow you greater organization. Accounting programs make life a lot easier, but only if you dedicate yourself to becoming a pro with them. Software can help you run your business better, but it takes time to learn and money to purchase.

    Stress

    If you’re incredibly busy already, or don’t possess a natural affinity for bookkeeping, the next ingredient in the pot may be more stress, a lot more. Managing your finances and reports can be frustrating and confusing, especially when it’s just you taking it on.

    Added stress means more accounting mistakes, less patience with employees, customers and family members. Stress bleeds into home life, decreases overall health, disrupts sleep and diminishes creative thought.

    professional accountant handling small business bookkeeping

    3 Costs of Hiring an Employee to Handle Bookkeeping

    Wages & Benefits

    Hiring a full-time staff member to manage your bookkeeping can bring you peace of mind as they can solve many problems for you. Still, this means that you must consider the cost of wages, either full or part-time and benefits.

    Keeping a staff member, or a few of them, to take care of accounting often means offering a solid annual salary and benefits for them and their family. As you know, the cost of benefits adds up quickly.

    Overhead: Equipment & Space

    Keeping a bookkeeper in-house means dedicating a space for them. This means either carving out space in an existing room, renovating, or adding onto your structures. Your accountant needs a quiet, solitary space, where they can focus on making sense of your finances, organizing and analyzing reports, and keep vital documents and data safe from intrusion and theft. Creating this space is a must. But it will take an investment of both money and proper planning.

    Whether you’re doing the books on your own or hiring an employee for it, you’ll need equipment like fast computers, network hardware, copiers, fax machines, phones, printers, and software and cloud-based applications to manage everything with relative ease. All these items take a financial investment, sometimes a considerable one.

    Training

    Bookkeeping is not a simple task, especially for small business owners. After all, most of us didn’t go to school to learn how. That’s why it’s important to train your staff, yourself, or hire someone who is familiar with the process. One hidden cost of doing your own bookkeeping is this training.

    If you’re new to bookkeeping, you’ll need to learn the basics of accounting and keep up on changes in tax laws. You or your bookkeeper needs to take advantage of continuing education courses to stay updated on current developments in the field. Education courses and in-house training can be expensive and take time away from other business matters.

    Conclusion

    Doing your own accounting might be a good idea for tiny businesses, those needing to save money up front, and those who enjoy learning new skills and are fully committed to remaining consistent with their financial management. But handling these things yourself or hiring an employee means a considerable investment of time, money, and focus. This can steal from other leadership and personal opportunities and cost more than you might think.

    Often, a great solution to this is outsourcing your accounting and bookkeeping work to an outside accountant or bookkeeping service. Professional accountants have years of experience, know tax code inside and out, can navigate and decipher complex reports, and work with you to make more strategic financial decisions.

    Outsourcing your bookkeeping is an investment. But you won’t have to carve out space in your building, purchase new equipment, or pay for training and benefits. You’ll get a top-notch financial professional to watch over your books so you can relax and focus on everything else that matters to you.

    Sound Accounts is your one-stop small business bookkeeping shop. We help business owners from every sector succeed by managing their books, making sense of their budget and reports, and presenting them with ways to improve their already strong business. Contact us today to get started.

    For answers to bookkeeping questions, see our FAQs below.

    FAQ

    Is handling my bookkeeping in-house a good idea?

    It is sometimes. If it’s just you or you only have a couple of employees, taking care of the books yourself can save you time and help you learn a valuable skill. It also forces you to focus on key financial drivers you may have been missing. However, it is an investment that is often remedied by contracting a professional accountant.

    What are some costs of in-house bookkeeping?

    Depending on whether you do it yourself or hire an employee, these costs include the time it takes to learn accounting programs, employee training, renovations or building a dedicated office, new equipment and software, employee wages and benefits and the sacrifice of your personal time and freedom.

    When is it a good idea to outsource my bookkeeping?

    If your business is growing or you have more than enough in your budget to pay for the service, outsourcing your bookkeeping work gives you a dedicated professional with years of experience, who will manage every aspect of your books, taxes, and help you make sense of your financial reports.

    It is a good idea anytime you want to free up your time to focus on other aspects of business management, find that your business and finances are becoming more complex, or simply want someone who knows accounting inside and out to handle things for you so you don’t have to worry.

  • Small Business Tax Deductions: Which Expenses can I Write Off?

    Small Business Tax Deductions: Which Expenses can I Write Off?

    When you’re a small business owner, it’s natural to want to know all the ins and outs of the tax code. But sometimes you have so many expenses that it’s hard to keep track of which ones can be written off. As a result, you may miss out on deductions that could add up over time. In this article, we’ll go through several of the most common expenses for small businesses and help you decide which ones are worth taking a closer look at.

    Which expenses can a business owner deduct?

    With such a staggering array of expenses, it isn’t easy to know which of them can be deducted, what you should focus on to save the most money, and how to do it correctly. Here are 14 expenses you can deduct from your taxes.

    Utilities: Unlike the rules governing personal taxes, which do not allow deductions for these personal expenses, utilities such as electricity, gas, oil, water, trash and telephone bills, can usually be deducted for businesses. With the amount most businesses pay annually on these resources, it pays to keep track of your numbers and look for this deduction.

    Insurance: The majority of businesses take out some form of insurance, if not several. The cost of health coverage for the business owner, as well as business continuation insurance are deductible. Other types of deductible insurance policies include liability coverage, property insurance, malpractice, worker’s compensation, auto insurance on company vehicles, and employee life insurance paid for by the company. When it comes to health insurance, a small business may qualify for up to a 50% tax credit under the qualified small employer health reimbursement arrangement (QSEHRA).

    Rent on Business Property: If you rent your business property, you may deduct your rental payments or lease from taxes. If you run your business from home, you can do an eligibility test with the IRS to see if you are entitled to any deductions based upon home use. Certain types of deductible home business expenses include insurance, utilities, mortgage interest, repairs, and depreciation. There are specific rules to abide by and limitations that apply when calculating expenses and deductions as it pertains to the use of your home for business purposes. To learn more, see IRS Publication 587. And whenever questions arise, consult with a qualified accountant for answers.

    Auto Expenses: If you have a car specifically for business, you can usually deduct anything considered a car expense such as payments, fuel, repairs and insurance. You must keep records that prove business usage and record mileage. You can rely on the IRS standard mileage rate, which is $0.58 cents per mile.

    It is important, though, to keep in mind that if you use your car for both business and personal purposes, you need to divide your expenses based upon actual mileage used for each purpose. You may refer to IRS Publication 463 for more information regarding travel, entertainment, gift, and car expenses.

    Office Supplies: Boxes, paper, pens, pencils, paper clips, staplers and staples, copier and printer ink, you name it. All these costs may be deducted from taxes.

    Office Furniture: Furniture is generally considered an office supply, so can therefore be deducted as a qualified expense. 

    Travel Expenses: If, as a business owner, you are frequently on the move, it is worth researching this deduction. Types of deductible expenses include airfare, lodging, tolls and taxis (UBER & Lyft). Certain limitations apply: You must be away from the area or city where you regularly conduct business and you must be away from your tax home for more than a full workday.

    Employee Salaries: Usually, your employee salaries are tax deductible, including bonuses and commissions. These deductions, however, do not apply to sole proprietors, LLC members and partners, as these members are not considered employees.

    Advertising & Marketing: If you can prove it is directly related to your business, you may deduct regular advertising and marketing costs, including business cards, billboards, print and digital ads and more. It also includes contracting individuals to design logos, write copy for content marketing, write scripts for video ads, or design and implement any other marketing or advertising tool.

    Interest: If you have one or more business loans, you’re making interest payments. Those payments are usually tax deductible as long as you’re using the entire loan strictly for business purposes. To qualify, it must be a traditional loan through a lender, like a bank or credit union. It can’t be a personal loan from a friend or family member. The business owner must also be legally liable for the debt.

    Contracted Labor: If you use independent contractors as part of your workforce, you can deduct compensation made to these individuals. To do so, you must issue a form MISC-1099 to any contracted worker making over $600 (cumulative annually), and a 1099-K if they are paid by credit card or with PayPal or similar apps.

    Legal and Professional Fees: Whether it’s an attorney, a team of lawyers, or a professional accountant, you can deduct 100% of these fees.

    Rent and Depreciation on Equipment and Machinery: If you lease equipment for your business, you can deduct these costs. Whether it be office machines like fax, phone, computers, monitors, copiers and printers, transport vehicles like trucks and vans, or heavy machinery for production or farming, you can take advantage of this deduction. You must deduct it over the course of several years. You need to claim a Section 179 deduction. This allows business owners to deduct up to the limit of $1,050,000 and a maximum value of $2,620,000 for property during a single tax year. For many businesses, this can be a significant deduction, given the volume of equipment many companies use.

    Start-up and Organizational Costs: To be honest, this one isn’t actually a deduction. The IRS sees start-up costs as a capital expense. They are viewed simply as an investment since the money invested hasn’t left the business; it has merely been transformed into an asset. Capital expense deductions are usually calculated over several years. This is called amortization. This enables businesses to accurately assess their profitability. For specific information on this process and your possible savings, see IRS publication 535.

    This is not an exhaustive list. There are many more deductions available to business owners. Take time to study your options. Seek information from the IRS and meet with an accountant to discuss all your options. It is important that you file correctly when claiming deductions and that you don’t miss out on additional savings. A qualified accountant can make sure you’re covered.

    business owner working on small business tax deductions

    What are some things you can’t deduct from your taxes?

    Gifts: This one is mixed. You can deduct the first $25 of gifts to clients. After that point, there is no deduction.

    Regular Commute: Mileage incurred while driving to and from your regular place of business cannot be deducted. However, there are a few exceptions. You must have a qualifying home office and be forced to commute each day to a temporary mobile workstation/location outside of your metropolitan area. This exception is decided upon on a case by case basis by the IRS. You must consult a tax professional for more information.

    Penalties and Fines: You cannot deduct the cost of fines and penalties, even if you incurred them during business activities. Sorry, no breaks for parking and speeding tickets, or other similar penalties.

    The importance of documenting everything and keeping receipts

    When it comes to your business expenses, it’s important to keep thorough records. This will help you if you ever have to dispute your deductions for any reason, whether it be during an audit or in hopes of getting approved for a loan. Plus, maintaining complete records ensures you have the best chance of tax savings. Keeping meticulous records can seem like a hassle at first, but it will actually make things easier down the line because you’ll know exactly what the IRS needs from you.

    These days, there are so many programs that help us keep track of our expenses much easier than we used to. From QuickBooks Online and Xero, to apps like Evernote and others, many programs allow you not only to enter your figures manually, but even take photos of receipts and categorize them. Whether you box up your receipts or take photos of each one, make sure you have a visual record of them all.

    The importance of quality accounting professionals during tax time

    When it comes to finding and understanding every possible tax deduction, one of the most important investments is to hire a great accountant. When you hire an accountant, they’ll be able to keep track of your income and expenses, but they’ll also be able to save you money by catching mistakes and helping you reduce your tax bill.

    They also help you spot patterns and make better, more strategic decisions about the direction of your business. It’s vitally important for small businesses to have a quality bookkeeper or accountant who can handle the complicated process of filing taxes correctly and helping the owner manage their finances with confidence.

    Conclusion

    Business tax deductions can save you a lot of money. And there are a lot of them to make use of. Study up, consult with a tax professional and hire an experienced accountant to get the most out of your deductions.

    Sound Accounts can help you get the most out of your business tax deductions. We help business owners from every market sector understand all their tax options, save money, manage their accounting, and make the most of their resources. Reach out to us today for the accounting and tax support you need.  

    For quick info about small business tax deductions, check out our frequently asked questions and answers below. 

    FAQ

    Why is it important to understand business tax deductions? 

    There are countless expenses involved in running a business. Many of them provide you with the possibility of tax savings, sometimes significantly. It is important to have a firm understanding of these, both so you can save the most money possible, and so that you file everything correctly to avoid costly errors. 

    What expenses can I write off?

    There are too many to list here. But they include rent, utilities, equipment and machinery, travel expenses, interest payments on loans, office supplies, salaries, contracted work, legal fees and much more. Both the IRS and a qualified accountant will help you better understand how to navigate the world of business tax deductions. 

    How do I make sure I’m filing my taxes correctly?

    The best way to ensure accuracy is by hiring a qualified accountant. They will help you make sense of your expenses, find every possible deduction that might save you money, and educate you on what to do in the future to stay organized. 

  • Should I Hire an Accountant or Do My Own Books?

    Should I Hire an Accountant or Do My Own Books?

    Many business owners are choosing to hire an accountant instead of doing their own books. This can be for several reasons. But should you hire someone or handle it on your own? The answer often depends on what kind of business you’re in and how much work you’re willing to put into it. Factors like the size of your business, the number of employees, and the complexity of internal logistics might all affect your decision to either take on bookkeeping yourself or hire it out to a professional. Let’s look more closely at the pros and cons of each one and equip you with the information you need to make the right choice. 

    Should you hire an accountant or do your own books?

    This decision is unique to each individual and involves several factors. How big is your business? How many employees do you have? Are you already finding it difficult to keep track of your books or does it come naturally? Are you comfortable with accounting software or do you feel that a real set of trained eyes would help you make better financial decisions? Is spending time on accounting worth it to you, if you even have the time? Or would you rather use that time to focus on other parts of your business?

    Why people hire accountants

    The main reason companies hire accountants is because they want to avoid doing their own books. Some business owners are too busy with other tasks like marketing, sales, and operations to do their own bookkeeping, so they hire someone else to take care of it for them—promoting efficiency and accuracy in the process.

    Another reason many owners hire an accountant is that the accountant will make sure that your books are up-to-date and account for all the financial aspects of your business. They’ll help reduce errors by working closely with you throughout the bookkeeping process—helping you develop a better understanding of your company’s finances and accounting systems. Accountants keep your taxes clean and up to date, spot opportunities for better resource management, and free you up to focus on expansion, customer satisfaction, and product development.

    If you’re a business with a growing number of employees, or you’re managing a lot of resources, hiring an accountant can help you keep your finances organized. Still, there is sometimes a fine line here. If you have less than 10 employees, there may not be much work for your accountant to do. However, even if you are a smaller company, you may not enjoy handling your own books, feel overwhelmed, or simply want to focus that energy on something else. In this case, why not hire a professional if you can afford it?

    business owner working with her accountant

    Pros and cons of hiring an accountant

    Partnering with an accountant is often a great option for many businesses. They will handle all the books for your company, uncover problems early on, and help you pursue new opportunities. Their expertise includes taxes, regulatory reporting, financial statements, internal ledgers, and more. Bookkeeping programs help you with some of this, but having a fully engaged individual to watch over these key financial areas can often make the difference between consistent success and just getting by.

    Another benefit of hiring an expert is that they’ll likely have a broader scope of knowledge to explore. Accountants have years of experience dealing with a multitude of businesses. They understand the hidden rules of taxes, know how to pick out seemingly insignificant details buried within financial reports, and help you put together a more focused plan for the weeks and months to come.

    The primary drawback is that hiring someone requires a financial investment. Professional services like those offered by CPAs are worth it, but can sometimes be more than small business owners can afford early on.

    Why some people choose to do their own books

    Doing your own books is a great way to save money. It’s also a wonderful opportunity to learn a new skill, gain a better understanding of your business and get used to using accounting programs. If your business consists only of you or perhaps a couple of employees, learning how to maintain your books can be a significant step toward taking more control over your success.

    Some people just like having the control within their own hands. Certain business owners simply prefer to manage most of what they do, including their bookkeeping. This is fine as long as you do your research, get the right tools, keep up with it daily, study your reports, keep detailed records, and ensure you are complying thoroughly with all tax laws and business fees.

    Why sole proprietors often do their own books

    Many sole proprietors agree that it’s worth it to do their own books and deal with the hassle simply because they have the time and want the control.

    If they are diligent, sole proprietors can keep track of every dollar they make and spend and know exactly what’s going on in their business. When your business model is relatively straight-forward, and doesn’t involve complicated financial management, multiple overlapping departments, or employee payroll and benefits, doing the books yourself makes sense. Plus, this will allow you to see how much time it takes to handle your own books. This will help you better determine whether continuing on this path or pursuing professional accounting help is the best choice going forward. 

    Some difficulties with handling your own books

    Mistakes: If your bookkeeping isn’t handled correctly, it could cause a financial blow to your business.

    Time and Confusion: It could be more of a hassle than you originally thought, eating up time you could be using on other tasks. You may also not enjoy it enough to take it seriously and begin to miss key details within your reports. 

    Tax Penalties: You could miss paying taxes on time or do so incorrectly.

    Energy and Focus: With everything on your plate, you may not have the energy left to spot mistakes or glean vital information from financial reports to make more strategic decisions about the growth of your business.

    If you are going to manage your own accounting, make sure you have the right tools in place. Subscribe to a quality program like QuickBooks Online or Xero, or one of several others. Learn all its features and study your reports daily. Even if you;re doing it yourself, if problems arise or things get too confusing, reach out for professional help. 

    Conclusion

    There are pros and cons to each choice. Learning how to do your own books is an important skill to master. It helps you be a more engaged and focused business owner, with an eye on the details and a better handle on what goes on behind the scenes and beneath the surface.

    Hiring an accountant, whether they be in-house or outsourced, can free you up to focus on other things. They can spot errors early on, help you understand trends and patterns that either affect you negatively, or open doors toward growth, help you pay your taxes, keep you accountable to your own budget, and give you peace of mind knowing you have a partner who is looking out for you and your business.

    Sound Accounts helps business owners manage their books with confidence and ease. We offer a range of accounting services to meet the varying needs of any business, letting you relax, breathe deep, and focus your attention on everything else.

    For answers to accounting questions, see our frequently asked questions below. 

    FAQ

    Why is doing the books important for me as a business owner?

    Keeping up with your accounting each day is the only way for you to be successful in the long run. You’ll see where your resources are going, where you’re realizing the most profit, and which areas are leaking money. You’ll spot trends and have a clear view of where to go next. Not to mention paying your taxes correctly and on time. 

    Should I hire a professional or do my own books

    This decision is different for each business owner. It depends on the size and complexity of your business, the number of employees you have, how comfortable you are with accounting software and spreadsheets, whether you have or can make the time each day to update financial data and study your reports, and other reasons. If you understand the importance of keeping up with your books, can navigate the software, have few employees, and are fully committed, you can manage your own books. 

    However, if you have a more complex business model, more employees, several accounts or departments, each with their own resources and expenditures, deal with a lot of vendors or partners, or simply don’t have the time, energy or patience to do your books, hiring a bookkeeper or accountant is the right choice. They will take the stress and worry off your plate, handle all accounting matters, spot troubled areas and trends and help you make more informed and strategic financial decisions.

    As a sole proprietor, should I hire an accountant?

    It isn’t always necessary to hire someone. You may well be able to handle your own bookkeeping if you have the time and desire to learn how to do it well. If your business is relatively straight-forward and you want to oversee your accounting, you can use quality software to help you manage it effectively. However, even if you are a sole proprietor, professional accounting services can often be a great choice for you. If it is an expenditure that you can afford and it saves you time and helps you stay current and make better choices, it may be worth outsourcing part-time for monthly help keeping your books. 

    What accounting program should I use?

    QuickBooks Online is often the right choice for any business. With robust options, a range of features, well-organized reports, and solid customer support, they’ve been doing this for years and continue to improve.  Other great options include Xero, Freshbooks, Netsuite, Sage and countless others. Each carries different features and varying levels of support. It is important to do your research first, and find the program that you’re comfortable with and provides everything you need.

  • Business Accounting: Why small businesses need to know their numbers

    Business Accounting: Why small businesses need to know their numbers

    There’s a lot to learn when it comes to running your own business. One of the most important things you’ll need to know is the numbers. In order to gauge how well your business is doing, it’s important that you have a good understanding of what makes a business successful, especially the finer points of business accounting. From analyzing your expenses and profits to determining which accounts are performing the best, knowing the numbers is a key component to being a successful entrepreneur. You’ll be able to pay your taxes accurately and on time, and use your understanding of financial reports to make informed decisions about your business. Here are some helpful hints for understanding your numbers and how these impact your business.

    Understanding your numbers and your business

    The numbers, more specifically, your financials, are what help determine how successful your business is and what needs to be changed to improve its performance.

    Without a clear understanding of this, you risk losing money, and nobody wants that. Afterall, I imagine you got into this game to make a profit while offering quality products and services. To understand your numbers, you’ll need to do some digging, but just remember: Numbers don’t lie. Be ready to look at things dispassionately, unflinchingly, so that you remain honest with yourself about how things are going and where you can make changes. To get a better grasp of your financial position, use these tips for getting a handle on what’s really going on in your business:

    1. Look at the expenses and payments from different accounts. The first thing you should do is make sure all of your accounts are balanced and that everything has been paid for before making any decisions about cutting back on spending. Determine what expenses are truly adding to your business and which ones are dead weight. If there are redundancies or expenditures that aren’t leading to measurable growth or at the very least, increased efficiency in workflow, faze them out to free up cash for more beneficial endeavors.

    2. Estimate how much profit you will make each month. This number can help you determine if you’re making enough money or if there’s room for improvement. Keep in mind that this number will change as time goes on, so don’t base any major decisions off of it too soon. It’s important to know your priorities and your personal schedule for success. Some businesses plan ahead for several months of losses or a break-even period, where the focus is more on building infrastructure and establishing market influence. If executed skillfully and other seen and unforeseen things fall into place, this should begin to shift toward profitability within a certain period.

    Other businesses expect to turn a profit from the first quarter. Certain brands and markets deal in products and services that are more tangible, more easily managed and offer an earlier look at profitability.. It’s key that you know your market inside and out, that you understand where your business fits and how to determine what a realistic expectation of profitability is for your specific field and business type.  

    Why is ROI important?

    In a business, it’s not enough to simply make money. You need to have a way of measuring the return on investment (ROI) for all of your time and effort. In order to do this, you’ll need access to information about how well your company is performing. This includes things like your monthly sales, net profit margin and monthly expenses, including payroll. By analyzing these numbers, you can get an idea of how much value you’re providing for your customers. 

    You can also use ROI to focus on improving certain aspects of your business. For example, if you know that the average net profit margin for your company is 3 percent, you could use that knowledge to focus on lowering costs or offering a selection of higher-tier, higher priced products in order to increase the average profit margin, as long as any cost-cutting methods don’t damage your service or negatively impact your brand in the market. This will help improve the overall performance of the business and make it easier for you to reach expected goals. 

    ROI helps you see the often-hidden mechanisms that lead toward profitability or losses. Beyond all the excitement of a few good months, or the worry of a few bad ones, a detailed look at ROI and all the factors that led you to those figures, allows you to get a wider, more macro view of things, so that business decisions are made with long-term growth in mind, not just immediate gains. 

    business owner working on her business accounting

    Business Accounting: Making sense of reports

    The first step to getting what you need from your numbers is knowing what reports to look for. There are many different reports that will give you an idea of how your business is coming along, from a financial perspective, and it can be overwhelming to pick which reports you should focus on and why.

    To simplify this process, here are some integral reports to consider when trying to make sense of your numbers. 

    – Financial Reports: There are four main types of financial reports that you’ll want to use for analyzing your business’s performance. They are accounts receivable (AR), fixed assets, inventory, and payroll.

    – Profit & Loss Statements: Profit & Loss statements have three sections: income statement, balance sheet and cash flow statement.

    – Expense Report: This report will list all the expenses incurred by your company in a given time period. It includes all necessary information like expenses paid out and expense categories broken down by function or department (i.e., administrative costs).

    – Account Analysis report: This report provides detailed information about individual transactions (line items) that have been posted to the general ledger from other areas such as Accounts Payable, or invoiced expenditures, Payroll and Accounts Receivable (sales invoices and income received). An account analysis can help identify trends and give an indication of how a specific account is performing.

    Tracking cash flow, income, and expenses

    You’ll need to make sure you have a good grasp on how much money comes into your business and how much goes out. Tracking cash flow allows you to know whether your expenses are exceeding income. 

    You can then use these numbers to determine what accounts are performing well and which ones aren’t. For example, let’s say that you have a website that costs $25 a month to maintain. If your website is bringing in $125 a month, then it is generating $100 in profit per month (minus quarterly or annual taxes, of course). Simply put, this means that the income is greater than the expenses of running the website. 

    Of course, this is a simplified example. Your business is far more complex than this, involving a range of expenses, investments, financial relationships, and future goals. Keeping a focused eye on your financial reports, planning ahead, being honest with yourself, and communicating your goals are a few of the ways you can use your numbers to add to your success. 

    Using the numbers to make strategic decisions

    As we hinted at before, knowing your numbers isn’t simply about understanding what your business is doing now, but what it might be capable of in the future. All of us want growth. We want to expand and innovate, to better meet the needs of our market and increase profitability in the process. But to do so, we need the right information. 

    You will never be able to plan ahead effectively or create confidently if you aren’t already managing your business finances closely. Great ideas will get lost beneath peripheral expenses and daily worries. Expansion will give way to debt. That’s why having the right people and programs in place to help you understand the numbers and what they mean for your business is key to building the future you envision.

    Creators and CEOs that are constantly innovating and dominating their respective fields all understand the impact that numbers have on strategy. They spend a great deal of time studying to know where they can cut back, where they can bulk up, where they can shuffle money to better meet their goals, and ultimately, how to lead responsibly with both people and their numbers in mind. A successful future only happens with good grasp on the present.

    Using the numbers to Identify trends

    Another aspect of using the numbers to make strategic decisions is in identifying trends. In order to identify trends, you need to know what those numbers are. Financial statements don’t just present you with raw data about your profits and expenses. When viewed over time, quarterly, bi-annually, annually, then over several years, patterns emerge from the sea of figures. 

    You’ll see things you didn’t know were even there, odd expenditures, under-performing resources that need updating, over-performing departments that deserve more resources to maximize on their upward trajectory, different biases toward certain aspects of the business which can imbalance the foundation of your work. Trends allow you to spot opportunities, places where outside investment or partnerships might bring a lot to the table and help you see where additional cash flow can be utilized to create something new.

    The right tools to keep track of your numbers

    There are several ways to track your numbers. Using the right tools can make your life easier and your business more successful. The best tools involve both human and physical resource capital. It is important that you get the best software or cloud-based programs to manage your finances well. Programs like QuickBooks Online and Xero are perfect examples of these. Both have different plan options to meet the varying needs of businesses of all sizes and types. You can also use common programs like Excel and Google Sheets to create spreadsheets and databases.

    The human component is probably even more important. Whether you hire a full-time accountant or bookkeeper, or outsource to a professional for part-time work, having someone around that you can trust implicitly with understanding and tracking your numbers is one of the most important things you will ever do for your business. Don’t underestimate the power of a good financial professional to help you balance your budget and spot opportunities for future growth.

    Conclusion

    The only way to be successful as a business owner is by knowing your numbers completely. This helps you keep a healthy budget, remain profitable, innovate and plan for future expansion. Be sure to put the right resources and people in place to help you do this. Purchase or subscribe to quality accounting software, get a financial professional to watch over your numbers, communicate often, study and understand what your numbers mean, and act upon discrepancies quickly, before they grow into larger problems. Knowing your business means knowing your numbers. And knowing your numbers means the difference between a business that merely survives, and one that thrives.

    Sound Accounts offers dedicated accounting services to businesses of all sizes. We help new and established business owners manage their finances with skill and ease, so they can make smart choices for their brand, their customers and their long-term growth.

    For quick answers about knowing your numbers, check out our frequently asked questions below. 

    FAQ

    Why is it important to know my numbers as a business owner?

    Knowing your numbers not only gives you a clear picture of how your business is performing, but helps you spot patterns within past performance and opportunities for growth. WIthout a solid handle on your finances, you will never be able to consistently succeed or measure this success in a way that allows you to build upon what you’ve established. Business owners that understand their financial reports and use them to plan ahead, are always more successful than those who ignore their numbers.  

    What kinds of reports should I understand?

    Though there are others, it is important you understand Financial Reports, including accounts receivable (AR), fixed assets, inventory, and payroll, Profit and Loss Statements, Expense Reports and an Account Analysis Report.

    What are the most important tools for managing my numbers?

    These include both programs and people. Excellent software or cloud-based programs like QuickBooks Online and Xero are perfect, feature-rich tools. Also, don’t overlook the most important thing, hiring or contracting an experienced accountant or bookkeeper to watch over and help you manage your business finances. They can help you better understand your numbers and spot opportunities while saving you money by cutting costs where redundancies or inefficiencies exist. 

  • 5 Business Budgeting Questions Every Small Business Owner Should Ask

    5 Business Budgeting Questions Every Small Business Owner Should Ask

    As a small business owner, one of the most important things you can do is ensure that you have a good budget for your company. Many people start businesses because they have a dream of what their service or product can give to the world. But in order to provide these services, you have to ensure the financial health of your business. This requires attention to your business budgeting.

    How much money do you need to run your business successfully? How much money does your business require to survive? What does a good budgeting process look like? How do you determine a budget period? A successful business requires a well-planned budget. If you don’t have a budget, then you won’t know if you are spending too much or too little. A well-planned budget should also keep both short-term expenses and long-term goals in mind.

    Here are the top budgeting questions that every small business should have:

    1. Do you have a budget for your small business?

    This might seem like a silly question, but it really is the most important one to start with. If you don’t have a budget and aren’t keeping track of what is coming in and going out of your business, then you have no clear picture of the financial health of your company. This could make for some uncomfortable surprises when you start digging into the numbers.

    A budget is a roadmap for your company, so whether you are just thinking about starting a business, you’ve got some side hustles going, or you have a full-time business, you need to figure out a budget so that you know where your company is headed financially. You can’t effectively plan for business growth without knowing where your money is going. 

    business owner doing some business budgeting on her laptop

    2. What should be included in your small business budget?

    When you are starting out as a small business, it can be hard to know how to make a reasonable and realistic budget. You may have significant start-up costs, or you may be able to hit the ground running with just your laptop. Remember that a budget is your plan to understand and control your finances, ensure that you have enough cash flow to pay your bills, and plan ahead for the future of your small business so that you can make confident financial decisions.

    Regardless of industry or how you set up your business, you need to have a solid budgeting process in place. A standard budget should include the following:

    • Cash flow projections: your cash budget allows you to project your cash position on a month-by-month basis. 
    • Costs: for a typical business, your costs can be broken down further into three different categories:
      • Fixed costs: these can include salary, rent, and financing costs
      • Variable costs: these can be inconsistent but should be accounted for, and could include things like overtime pay for staff
      • One-time capital costs: This could include the purchase of computers, equipment, a business location, or other one-time capital expenses.
    • Revenue: these are current sales or other income and can also include a forecast based on sales history and how you expect your small business to perform in the future.

    3.What are your regular expenditures, and do you have significant capital expenditures coming up in the fiscal year?

    Budgeting well involves anticipating both your regular expenses and big, unexpected, or one-time expenses that may come up in the fiscal year. When you are working on your budget, think about expenses that you need to plan for in advance. It can be all too easy to just think about your regular, month-to-month expenses, but your actual expenditures are also going to include one-time, capital, or unexpected expenses, so you need to plan accordingly.

    Is there equipment or technology that will need upgrading or replacing? Do you have a peak sales season that will require you to purchase more inventory in advance? Are you planning to move into a brick-and-mortar space? Think about the unique aspects of your small business that may require significant capital this year, and plan ahead to make sure your business stays on track financially.

    4. What are your projected sales for the next quarter and through the end of the fiscal year?

    Using both sales and expenditure forecasts can help you project your profit margin for the next 12 months, which will allow you to make smart, fiscally sound business decisions. If you want to grow your business, you’ll need to know what your profit margin is so that you can wisely invest in new products, services, marketing campaigns, or technology. Using both sales and expenditure forecasts allows you to see how much money you spend on different items. By knowing how much you spend on certain items, you can plan ahead and save money.

    5. How often should you review your budget?

    Let’s say you have done all of the above. You have your budget and projections and business plan, you have a good idea of what the coming fiscal year will look like, so you’re done, right? Well, not really. Budgets aren’t a one-and-done item that you can check off your to-do list forever. They need to be reviewed and updated regularly to ensure that what you laid out in your budget actually matches the reality of where you are spending and making money with your small business. This doesn’t mean you need to go over it with a fine-tooth comb every day; that wouldn’t be an efficient use of your time. Instead, your budgeting process should include time to review your budget at least once a month, with a more in-depth look at your annual budget a few times a year to make sure that you are meeting your financial goals. If you are not meeting your goals, then you need to adjust your budget accordingly and maybe revisit the strategic plan for your small business.

    Working with an experienced bookkeeper can help make your budgeting easier. Sound Accounts works with businesses of all sizes and we offer bookkeeping, licensing, payroll, quarterly reports, office management, and notary services 100% remotely. Let us keep your accounts safe and sound so you can focus on your business. 

    For some answers to common business budgeting questions, check our our frequently asked questions here:

    FAQ’s

    What is a small business budget?

    Like any other budget, a small business budget is a document that helps you identify your financial needs. It also serves as a tool to help you manage your finances. Your budget should include three main categories: income, expense, and cash flow.

    How do I set up my small business budget?

    The first step is to determine what your monthly income is going to be and what your monthly expenses will be. Then, you’ll add up these two numbers to get your monthly net income. These may just be guesstimates when you are first starting out as a new business owner, but even having a general idea can help you make good budgeting decisions when you are just starting out.

    How often should I review my small business budget?

    Budgeting is an ongoing process. You should review your budget at least monthly to ensure that your small business finances are on track. You should also take time quarterly to review it more carefully and plan for big expenses, capital improvements, or peak customer seasons that may come up in the fiscal year. 

  • Home Office Deductions: What is Allowed and What to Avoid

    Home Office Deductions: What is Allowed and What to Avoid

    Many people took the opportunity to start their own small businesses in 2020 and 2021. During the heart of the pandemic, a record 4.4 million new businesses were created. Up significantly from an annual average that has rested around 600,000 per year for the past quarter century. Nearly 32 million small businesses currently operate in the United States. If you were one of those new business owners or sole proprietors in the past few years, or you are looking to start a new business in 2022, the idea of working from a home-based office is an attractive one.

    Many new business owners start out by working from home and the great news is that many home office supplies can be deductions for your small business. But what is and is not eligible to be written off on your taxes? As a home-based business owner, do you know what you are allowed to expense? Do you know what counts as an office expense deduction? Let’s review some broad categories for home office expenses and break down what is allowed and what to avoid when filing home office deductions for your small business.

    Home Office Deduction

    The home office tax deduction applies if you use a specific portion of your house regularly and exclusively for your business. This is mainly based on the honor system, but here are a few examples that you can think about when deciding how the home office tax deduction applies to your unique business set-up.

    If you have a room that is used solely for your home office, such as a second bedroom that is not used for anything other than your small business activity, then that would qualify for your home office deduction because it is a dedicated space for your business. However, if you have that spare room set up as an office but occasionally work from your dining room table, you could not also include the square footage of your dining room to increase the deduction for your home office expenses. The dining room is obviously used for activities outside of business purposes. 

    Another example would be independent contractors who are able to do all their business from their laptops and choose to work from their kitchen table. In that case, it is going to be impossible to quantify the use of the whole kitchen as an acceptable home office deduction. A kitchen will never be seen as a principal workplace or dedicated space for business because it is impossible to prove that it is used exclusively for your business. So not only do you need to prove that the space is used to run your small business on a regular basis, you also need to prove that the space is not used for any other purposes.

    There are also two different ways to go about quantifying the home office deduction and calculating the office expenses for use of the space; the regular option and the simplified option. With the simplified version, rather than deducting expenses you’ll calculate the square footage of your space and multiply it by the rate of $5 per square foot up to 300 square feet of space. This means that, at a maximum, you would get a $1500 deduction for your home office.

    With the regular option, you’ll value your home office tracking the actual expenditures of the space against your total home expenses. To do this, you’ll have to add up allowable deductions including mortgage interest, taxes, maintenance, repairs, utilities bills, insurance, and other related expenses. Then you’ll calculate the percentage of those expenses for the size of your home office. 

    The simplified method is obviously easiest, but you should consider going with the standard method if your home office space is significantly larger than 300 square feet or if you feel that your home expenses and utility bills would put the deduction value of your home office above $1500. Your tax preparer can help you understand which of these methods will be best to track the legitimate deduction for your small business.

    There are also a few exceptions that relate to specific types of business owners, one example being if you provide day care services or run a daycare facility from your home. Another example is that you use part of your home for the storage of inventory. If you have a significant amount of inventory and product samples in storage in your home, you can potentially use this exception. Check with your tax preparer prior to tax season to see if there are any exceptions that could apply to your home office space.

    business owner determining her home office deductions

    Internet and Phone Deductions

    If you work out of a home office, some of the most common types of expenses you could deduct are your internet services, telephone service, and fax bills. For a home-based business, those are easy to quantify as a tax-deductible expense. However, you can only count an office expense deduction that is directly related to your business. This means you can’t expense the entire cost of your home phone and internet bills simply because you work from home; to be a legitimate business deduction it has to be related to the running of your business. 

    It can be tricky to figure out what was purchased for personal purposes and what are deductible home office expenses for business-related activity. The easiest way to manage this is to either add a second phone line to your home, or get a cell phone to use exclusively for your business. Otherwise it will be very difficult to determine what calls were made for personal use vs. what calls related to your home-based business. 

    Similarly, it can be challenging to know how to deduct a portion of your internet expenses. What you can consider is the cost to build, maintain, and manage your business website. Those are reasonable expenses to deduct if you use a website to manage your current business. 

    Office Supply Deductions

    To be able to deduct office supplies you have to prove that they are ordinary and necessary business expenses, and not materials for personal use. So a printer that is stored in your home office space and not used by anyone else is an acceptable expense, whereas a printer that is used by all members of your family (for example, your kids use it for homework) is not going to be approved as a home office deduction.

    Likewise, if you do a school supply run for your kids at Target and decide to grab some office supplies for yourself at the same time, it is going to be a challenge to itemize what you purchased for household use and what you purchased for yourself in order to submit an itemized deduction of office supplies.

    An easy way to get around this is to use your business bank account for appropriate office supply expenses. That way your receipts and bank records will already be separated from family expenses and household budgeting and you will have an easier time identifying your business purchases. If you are trying to estimate your business taxes, it is much easier to identify appropriate business tax deductions if you are only looking at your company’s bank account. Maintaining accurate records and separating your personal expenses from your business expenses is always recommended, especially for home-based business owners.

    The best way to keep track of all potential tax deductions is to have an excellent bookkeeping system in place to keep detailed records of all your business transactions. Sound Accounts  provides bookkeeping, payroll, and licensing services. Whether you have a small business or sole proprietorship, and whatever stage your small business is at, we can work with you to provide accurate accounting and payroll support. Contact us to learn more about how we can serve you!

    For answers to some standard tax deduction questions, check out our frequently asked questions below:

    FAQ’s

    What is a home office deduction?

    According to the IRS, a home office deduction allows qualifying taxpayers to deduct certain home expenses on their tax return if they run a small business or do work for their small business from home.

    What qualifies for a home office deduction?

    There are many home office deductions that you may qualify for. The biggest one is usually deducting a specific amount for the physical space that you use in your home for small business operations. There are both simple and standard options for calculating the amount of deduction for your home office space.

    Are there limits to what I can expense or deduct for my home office?

    Yes, there are some strict stipulations for what you can expense. To get the deduction for the use of a physical space in your home, it has to be a space that is used exclusively for your small business. For office supplies, again they must be used exclusively by you for the management of your small business. There are a few highly-specific exceptions to these limits, so check with your tax preparer to ensure that you are getting all the deductions that your small business may qualify for in 2021.