The two most common business mistakes that accountants find their small business clients making is not having ongoing insight into their financials and only talking to their accountant during tax time, according to a new survey.
The survey, by online accounting software developer Xero, polled 500 U.S. accountants about their small business clients.
“That was the resounding finding of the survey, that businesses do not have ongoing insight into their finances,” said Xero president of U.S. operations Jamie Sutherland. “You couple that with the second most common mistake, which is only talking to their accountant at tax time. Really it’s a matter of staying on top of your business throughout the year and maintaining that dialogue. You start doing tax minimization strategies and different ways of saving money for your business. You can make purchasing decisions for your business earlier on, and take advantage of some of the deductions that are available. One of the statistics we found was that 71 percent of accountants said that having a real-time view into their clients’ finances would allow them to provide better advice.”
Forty-seven percent of the accountants surveyed said they believe small businesses should communicate with their accountant once a month in order to keep their business in good financial standing, while 22 percent believe communication should take place once a week. For 19 percent of the respondents, it was on a quarterly basis.
“Almost a quarter of accountants said they would recommend that a small business talk to their accountant once a week,” said Sutherland. “For many small businesses, it’s an end of the year thing. Before the age of the Internet, it wasn’t as doable. You didn’t have software that allowed for that communication and collaborative nature, and now we’re seeing applications—not just Xero— taking advantage of the Internet. You have this ability to make notes and comments, and communicate right inside the data you’re both looking at in real time.”
Approximately 45 percent of the survey respondents said that mixing business and personal expenses in their deductions is the most common business mistake, while 26 percent cited excessive deductions to income.
“Mixing personal and business expenses is a common mistake,” said Sutherland. “You want to make sure you delineate between those two things to make clear what’s going on with your business and what’s going on with your personal life. If you claim multiple years of deductions that are more than your income, those types of things are what the IRS looks at. Having said that, you definitely want to deduct whatever is associated with your business. But not paying taxes on time is a red flag.”
Twenty-nine percent of the survey respondents sad the home office is the most commonly overlooked deduction for small business owners, while 24 percent said it was hiring new employees.
“There are certain things you need to abide by when claiming home office expenses,” said Sutherland. “In this case, they’re sometimes overlooked and not taken advantage of. In every small business, it’s really important to look at what deductions you can apply for during tax time. If you are unsure, they are posted on the IRS Web site, or you can talk to an accountant or bookkeeper to help with that.”
A related area that came up for the survey respondents was travel expenses. “Keep a daily log or diary of your expenses on an ongoing basis so you don’t get to the end of the year to try to compile this information,” said Suttherland. “With the advent of some of the software that’s out there now, you can use your mobile device with online applications that collect expenses on the go and then upload that directly into the software. That alleviates a lot of the burden that comes with putting these expenses together at the end of the year.”