Most Common Mistakes to Avoid in Bookkeeping for LLC

Bookkeeping for LLC is a core part of the business finances and can have a significant impact on the growth and profitability of your business. It can encompass a variety of tasks, such as billing a customer, recording a fixed asset, or paying compensation to employees. 

Since bookkeeping is the backbone of any business, there are many potential mistakes that can damage your accounting and financial system. This article will introduce the most common mistakes to avoid in bookkeeping for an LLC. 

Mixing business and personal expenses

It may appear simple to cover a work expense with private money. However, combining your funds tends to make financial reporting (and taxes) more difficult in the long term. 

To prevent this stumbling block, make an effort never to use your cash to support business costs. Here is some advice to help you stay on track:

  • Manage your company’s finances with separate business bank accounts.
  • Have a separate payment method for your business (e.g., only using credit cards or checks instead of cash).
  • Stick a logo on your business credit cards to differentiate them from your personal cards.
  • Keep a small sum of money in your corporation checking account to pay unexpected business costs (so you aren’t inclined to use personal funds when you have your business accounts).

Failure in reconciling bank statements and accounts

This mistake in bookkeeping for LLC can result from mixing business and personal expenses. It could become a serious issue in the future if you don’t use separate bank accounts for your personal and corporate finances.

Using a single bank account can cause confusion between your personal and formal company spending. The IRS may request a detailed record of your entirely business-related expenditure if you are audited.

It’s a good idea to use separate bank accounts for personal and official activities. This simple practice helps you reconcile your bank statements and invoices at the end of each month. You can also identify the source of your finances and avoid any possible auditing events.

Throwing away receipts

If you lose your receipts (or throw them away), you won’t be eligible to claim the business deductions you created on your tax forms. We have already published several articles about the importance of keeping business receipts, make sure to check them out! 

Here are a few points to bear in mind to storing your business receipts:

  • It is perfectly acceptable to keep and use the online version of your receipts.
  • You may need to keep your receipts for up to six years. 
  • You can scan your receipts and save them in a cloud system such as Google Drive, Dropbox, or Shoeboxed to keep them safe for years without being damaged by fire, flood, or faded ink. 
  • Try to keep as detailed records of all business expenses (especially for meals and entertainment) as possible. You can claim a significant deduction from them. 

Recording payments to yourself as an expense

Don’t record the payouts as a possible cost when you charge yourself as a sole trader or a separate LLC. It’s a simple mistake to make. However, it will reduce your total financial gain and showcase an utterly bogus total for the earnings you must pay taxes on. Instead, deposit these funds into “Owner’s Draw.”

Neglecting sales tax

One of the most costly minor business bookkeeping blunders is failing to account for and pay sales taxes. Not paying enough attention to the measurement and processing of sales taxes can lead you to IRS penalties and fines. If you input information improperly, you may wind up with an invalid overall sales amount and, as a result, the obscene amounts of revenue taxes due.

We suggest that you work with your accountants and lawyer to ensure that your company complies by submitting the correct amounts of sales tax.

Tracking reimbursable expenses improperly

Accounting for business expenses from your own money is often a must, and one small business accounting error is failing to document refundable charges. If you fail to track these expenses, you potentially lose money and lack the right to claim tax breaks.

The solution is to build a documentation system that allows your organization to manage and document all reimbursable expenses regularly and easily. And Shoeboxed can help you with that!

Shoeboxed is a receipt management application that turns your receipts and business documents into a digital format in just one click by taking a picture straight from your smartphone or scanning a pdf. It automatically extracts, categorizes, and human-verifies important data from your receipts so that you can go over and check your records anytime with ease. Shoeboxed ensures you will always have your receipts securely stored and ready for tax purposes.Access your Shoeboxed account from your web browser or smartphone app. Stay audit-ready with Shoeboxed for FREE now!

Bookkeeping for Freelancers: 4 Proven Best Practices

If you’re a freelance writer, accountant, translator, or consultant, you’ll likely do your own bookkeeping. Though bookkeeping for freelancers is crucial for a freelance business, keeping an accurate log of your clients and business cash flow isn’t always easy. 

If you’re struggling to keep up with your financing, check this article for the four proven best bookkeeping practices for freelancers! 

Keep track of your records

Staying on top of your bookkeeping is critical to filing your taxes. Besides staying organized, you also need to keep track of some essential information, documents, and expenses for tax seasons, including: 

  • Total hours you worked on a project
  • Cost per hour for each client
  • Records of products or services you’ve provided to your clients
  • Internet and phone bills
  • Power and utility bills
  • Office supplies
  • Educational expenses
  • Software subscription fees  
  • Office rent (if you work from home, you can claim mortgage and property taxes)

In most states, freelancers are required to keep business financial documentation for up to six years for tax purposes. It’s a good practice to keep your documentation and data well organized and safely preserved, regardless of where you work or how much money you make.

Try to incorporate a coherent archiving system that allows you to access your financial data like bills, receipts, and notes quickly and efficiently. You never know when you’ll need to find some random document from the past! 

You can also check out our step-by-step guide on filing taxes as an independent contractor to get yourself ready for tax season.  

Separate your personal and business expenses

It might be difficult to keep your personal and company finances separate as a freelancer. Most freelancers will likely pay their business expenses with their personal money. However, this immediate benefit will lead to a huge hassle to sort through and separate personal and business expenses. It can also be an extra cost if you hire an accountant or bookkeeper to do it for you.

You should open up a business-only bank account as soon as you start your freelance business. It doesn’t necessarily need to be a business account. A second bank account would be sufficient when you’re just getting started.

This separation in your finances helps you better visualize where your money is going and coming from, making your tax preparation and cash flow analysis considerably more precise. This simple practice also helps you avoid financial problems in the future and determine which expenses are necessary for your work.

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Set reminders for payment

A freelancer is likely to work with many projects and clients, meaning that your payment depends on your clients’ schedules. 

Staying on top of your income may be difficult when you’re waiting to be paid. Since your clients likely focus on their business and forget upcoming bill dates, you may receive your payments later than expected. These overdue payments can affect your cash flow and planned income. 

A solution to this is to send out invoices with clear due dates and set up automatic reminders for payments and overdue payments. A little effort can go a long way in helping you receive your payments on time. 

File your taxes

Filing taxes can be a challenge for a freelancer, especially when you need to handle all of your business’s aspects.

Before you file your tax returns, think about your business structure. As a freelancer, your business is most likely a sole proprietorship. In this case, you pay your business taxes on your tax return by filing a Schedule C form with your Form 1040 Individual tax return. On the other hand, if you’re in a partnership or have formed an LLC (limited liability company), you can consider hiring a tax professional or using accounting software. And Shoeboxed can help you with that! 

Shoeboxed is a receipt management application that turns your receipts and business documents into a digital format in just one click by taking a picture straight from your smartphone or scanning a pdf. It automatically extracts, categorizes, and human-verifies important data from your receipts so that you can go over and check your records anytime with ease. Shoeboxed ensures you will always have your receipts securely stored and ready for tax purposes.

The bottom line

By incorporating some of the helpful best bookkeeping practices for freelancers outlined in this article, you can streamline your financial record-keeping, spend more time on your business’s core tasks and bring the best services to your clients. If you’d like to discover more helpful accounting and bookkeeping knowledge, tax tips, and engaging entrepreneur stories, don’t forget to subscribe to the Shoeboxed blog
Access your Shoeboxed account from your web browser or smartphone app. Stay audit-ready with Shoeboxed for FREE now!

Business Receipts Basics: What You Need to Keep for Tax Seasons?

As a small business owner, you know that you need to keep track of your business’s financial documents for tax purposes. Those documents include business receipts, bank statements, purchase history, credit card statements, online banking records, and a lot more. 

However, staying on top of those documents isn’t as easy as a walk in the park. Which business receipts should you keep? And for how long? And in what form? This article will answer all these burning questions.  

Which receipts do small business owners need to keep?


According to the IRS, keeping good records will help you monitor the progress of your business, prepare your financial statements, and identify sources of income. From that, you can keep track of deductible expenses and prepare your tax returns easier.

On the other hand, the IRS doesn’t explicitly mention the possibility of being in trouble if you don’t keep the right documents. When it comes to keeping receipts for tax preparation, it’s a good idea to be “better safe than sorry” and keep all documents related to your business. It’s even better to consult with a professional accountant about this. However, as a starting point, here are a few types of business receipts that you should absolutely keep:

Inventory

Did you buy inventories to sell to your customers? Or did you sell things made from raw materials? If so, you should definitely hang on to documents that identify the payee, the amount, and proof of payment for the items. Try to get a receipt for all these purchases. However, if you can’t get a receipt, keep the invoice and canceled check (proof that the check has been paid.)

Business assets

The term “business assets” refers to the property you own and use in your business. Furniture, computers, vehicles, or machinery are typical examples of assets. If you’ve ever tried to file assets for taxes on your own, you know that you’ll have to deal with a complicated thing like “depreciation.”

To make tracking depreciation easier, you should keep track of when, where, and how much money you’ve spent on your business assets. For example, you can keep receipts of when you purchase your company’s computers. You’ll also want to keep records of when you sell one of your assets.

Other business-related expenses

Most of your business receipts will likely fall into this category. Though every business is different, here are the most common examples of business-related expenses:

  • Advertising: Advertising expenses include designing and purchasing business cards, online and offline advertising, billboards, web hosting, etc. 
  • Vehicle expenses: Vehicle expenses such as gas and maintenance fees are tax-deductible, so don’t throw away those receipts!
  • Education expenses: This expense applies when you hire a professional or an education service to train yourself or your employee. Don’t forget to keep your invoice or receipt and your bank records to prove that you paid for the education expenses. 
  • Professional services: This expense applies when you hire a lawyer, accountant, bookkeeper, or graphic designer to work for a certain period of time. You will need to keep the invoice and the receipt when you pay the bill. 
  • Entertainment: Entertainment expenses such as taking clients out for lunch can be tax-deductible, but you need to pay close attention. You have to keep both the receipt and records showing that your activities were directly business-related (e.g., an email invitation for a business lunch.)
  • Networking: If you attend a networking event or conference, you’ll need to keep your receipts, bills, and bank records as proof of purchase.
  • Office supplies: Extra office expenses, such as printers, staples, paperclips, scanners, etc., are tax-deductible. So don’t forget to take the receipts every time you visit office supply stores! 
  • Travel expenses: During your work, you may need to visit a client or attend a conference in another state. Though the IRS requires specific qualifications for deductible travel expenses, you can keep certain receipts or bills of your travel expenses to deduct all or part of a trip. You can check out our article on how to manage your business travel expenses effectively.

How long should you keep business receipts?

In general, you should keep business receipts for three years (from the date you file your tax return). In some special circumstances where fraud or severe tax underpayment is suspected, the IRS might require you to keep your receipts for up to six years. For example, if you underpaid your taxes by more than 25 percent, you will need to keep those records on hand. 

How Shoeboxed can help you digitally store your business receipts

Years’ worth of business receipts can result in piles of papers. Fortunately, no one says that you have to keep all your business receipts in their original paper form. So, what’s the best alternative to save all your documents for any potential IRS audit? 

The answer is to digitize them. As the IRS accepts digital receipts, you don’t need to store physical copies of your bank statements, purchase history, or credit card statements. Today, there are many receipt scanning apps that help you digitize paper receipts and save them for years.

Shoeboxed is an all-in-one receipt management app for small business owners and freelance accountants. With an OCR (Optical Character Recognition) engine and human-verified feature, Shoeboxed ensures that your business receipts are precisely scanned, clearly located, and easy to track. You can then create clear and comprehensive expense reports that include images of your receipts, export, share or print all the information you need for easy tax preparation or reimbursement… within a few clicks. 

Moreover, Shoeboxed‘s mileage tracking and business card storing features make it a one-touch app to store and access all your business’s important information. 
Sign up and go paperless with Shoeboxed today!