Skip to content
- When reimbursing themselves, employees and vendors for mileage, they allow the individual to “fill up” at a gas station. The correct way to reimburse individuals for fuel is to record the actual miles driven and reimburse at the current IRS business mileage rate. Search "IRS business mileage rate" to get the current rate.This rate changes almost every year, and sometimes in the middle of the year. You can reimburse at less than the rate, but not more than the rate, otherwise it’s taxable compensation. The individual being reimbursed needs to provide a log of date, beginning mileage, ending mileage and business purpose.
- Purchasing office furniture, office equipment and computer hardware and not itemizing it in the books. These are assets and must be listed on your tax return with descriptions (computer make/model, desk size/color, etc.) and assigned dollar amounts. If you purchase a conference table for $500 plus tax and delivery, the entire cost is assigned to the asset. If you purchase several pieces of furniture, you must prorate the sales tax and delivery fee to each piece. The point is that the entire cost to get the asset into place is the cost of the asset you should record.
- Subleasing office space and not considering that you may be liable for state sales tax for commercial rental income. There is a formula for calculating whether or not you have to report the sublease as commercial rental income and collect and remit to Florida the sales tax.
- Withdrawing cash from an ATM machine while traveling for business and not keeping cash receipts and returning the unused cash back to the business bank account. It’s usually not possible to obtain receipts for tips, but you should keep a written record of the tips you pay.
- Ordering room service at a hotel while traveling for business and charging it to the room. Then recording the entire hotel bill as travel lodging expense. The meals should be separated and reported as travel meals expense.
- Not obtaining W9s for every individual and LLC who performs services. A W9 must be obtained upon hire of the provider, regardless if you pay the provider $600 or more (the 1099 requirement threshold).
- Donating to causes and recording the donation as “charity expense.” Sole proprietors and S corps cannot take charity deductions, only individuals can. When a business “donates” to a charity, it usually receives some type of recognition and maybe free tickets or a gift. The business should recognize as advertising expense their donation less the value of tickets or gift received. With this being said, please note I’m not a CPA and therefore not qualified to give tax advice. Confirm this with a qualified CPA.
- Creating a new account on the Profit and Loss because one expense transaction did not fit in any existing account. Usually, you don’t want to create new accounts unless you have several instances of this type of expense. If an expense is immaterial in amount and not occurring often, code it to Office Supplies or Office Expense.
- Not retaining copies of bank statements and canceled checks. You should always have these records each month either in paper or electronic form. Do not rely on being able to “get it from the bank” should you need it in the future.
- Inattention to the bank account and allowing employees to be signers on the bank account. Embezzlement happens more often than you realize. I’ve had clients who were embezzled by a bookkeeper who was their “close family friend." If the owner had paid attention to the bank account and viewed canceled checks, the embezzlement would have been caught. Most bookkeepers who embezzle from small businesses are not brainiacs. They are able to get away with the theft because the owners were not paying attention. Read my blog post over at Cash Flow Signals, "How To Know if Your Employees Are Stealing Your Cash."