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!
- Business Receipts Basics: What You Need to Keep for Tax Seasons?
- 8 Simple Practices For Small Businesses To Organize Receipts Efficiently
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!