6 Accounting and Payroll Mistakes That Could Cost Your Business
Wednesday August 20 10AM PT
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1. How do you maximize your tax deduction and minimize tax exposure?
2. How frequently should you pay and file taxes to avoid tax penalties?
3. How do you manage receivables to get cash back into your business?
4. Is accrual or cash accounting best for your business?
5. How do you avoid misclassifying employees and contractors?
6. What payroll and accounting reports do you need to keep on file?
What We Will Cover Today
#1
How do you maximize your tax deduction and minimize tax exposure?
“I’ll take care of these receipts when I prepare my tax return”
but…
Receipts are faded and unclear
You’ve lost some of them
You can’t remember what some of them are for
What Can Go Wrong? #1
● You miss expenses on your tax return, which
means you have fewer deductions
● You mis-categorize an expense because the
receipt is unclear, and end up triggering an audit
● If you have any spending problems you may not
notice them until tax time, instead of when you
could have nipped it in the bud
#1
A Lot Can Go Wrong
● Track your expenses as they come in
● Automate the task
● Monitor your spending and make adjustments as needed
#1
What Can You Do?
● Add expenses to your accounting solution
as they come in to track every dollar your
company spends.
● Keep up-to-date records of your expenses
so you can flag issues as they come up
● Use a provider like FreshBooks to set up
automatic expense import.
#1
Track Expenses As You Go
#2
How frequently should you pay and file taxes to avoid tax penalties?
“I’ll reconcile my tax payments at the end of the year”
but…
IRS and states regulate your tax payment schedule
The frequency of paying employees and employee
taxes is not for you to decide
#2
What Can Go Wrong?
● You pick the wrong schedule for paying your
employer taxes
● You forget to file the right forms at the right
times
● You get fined: 40% of small businesses get fined
an average of $850 per year
#2
A Lot Can Go Wrong
#2
What Can You Do?
● Do your research up front
● Pay attention to IRS and state notices mailed to you
● Consider offloading some of the work
#2 Learn the regulations or outsource it! ● Learn what your local, state and federal tax obligations
are
● Check with your state’s department of labor to see if
you need to pay taxes on a semi-weekly or monthly
basis
● Understand what your filing requirements are (usually
quarterly and annual)
● Use a full-service payroll provider if you don’t want to
worry about any of this
#2 State Regulations Can Be Overwhelming
Arizona Dept. of Economic Security
Arizona Dept. of Revenue
California Dept. of Industrial Relations
California Employment Development Dept.
California Franchise Tax Board
Colorado Dept. of Labor & Employment
Colorado Dept. of Revenue
Connecticut Dept. of Labor
Connecticut Dept. of Revenue Services
Florida Dept. of Economic Opportunity
Florida Dept. of Revenue
Georgia Dept. of Labor
Georgia Dept. of Revenue
Illinois Dept. of Employment Security
Illinois Dept. of Revenue
Massachusetts Dept. of Revenue
Massachusetts Labor & Workforce Dev.
Nevada Dept. of Employment, Training &
Rehabilitation
Nevada Dept. of Taxation
New York Dept. of Labor
New York Dept. of Taxation & Finance
North Carolina Dept. of Labor
North Carolina Dept. of Revenue
Tennessee Labor and Workforce Dev.
Texas Workforce Commission
Utah Dept. of Workforce Services
Utah State Tax Commission
Washington Dept. of Labor & Industries
#3
How do you manage receivables to get cash back into your business?
“If I just focus on getting customers and delivering good service,
my business will succeed” but…
collecting receivables is just as important
invoices come in at an unpredictable rate
What Can Go Wrong? #3
● You send the invoice right away, but forget to
follow up
● You put off invoicing and invoice for the wrong
amount
● Worst of all, you could potentially forget to
invoice
#3
A Lot Can Go Wrong
#3
What Can You Do?
● Invoice as soon as the project is finished
● Track the work you do as you complete it
● Automate follow ups
● Use online payments to speed everything up even more
● Our users, on average, get paid 5 days faster. If they're using
online payments it can be as many as 11 days.
#3 Automate Your Invoicing in the Cloud ● Access invoices whenever and wherever you need
them
● Allow for collaboration – everyone can work within the
same system at the same time
● Always know how much money you have outstanding
● Give you and your client a paper trail– trace the dollars
you have received back to a “paper” record and your
client has a document showing the money they owe.
Tax officials love this.
#4
Is accrual or cash accounting best for your business?
#4
Definitions of Cash vs. Accrual Accounting
● Cash Accounting: This type of accounting recognizes revenue
when cash is received and expenses when cash is paid out.
Under this method, there is no accounts receivable or payable.
● Accrual Accounting: This type of accounting recognizes
revenue and expenses when they are earned, regardless of
when cash is paid in or out.
#4
Cash Accounting vs. Accrual Accounting
Cash Based Accrual Based
Visibility into Cash Flow
Good Ledgers correspond directly to cash on hand
Poor Ledgers account for expenses or revenue not yet paid
Visibility into Long Term Trends
Poor Balances for a particular period can be biased by an influx of payments, regardless of when the sales were actually made
Good Business owners can use trends to predict future costs and revenue
Accounting complexity
Low Income and expenses are recorded in tandem with cash in/out
High Recorded income and expenses do not necessarily reflect cash on hand
“My business is too small for my accounting methods to have any
impact” but…
Your accounting method is a direct insight into the
health of your business
Inaccurate accounting can lead to fines
What Can Go Wrong? #4
● Under accrual accounting, your business reports
revenue before receiving actual payment, and
you are short on cash this week or month.
● Under cash accounting, you don’t have a clear
view on your company’s growth because you
only report revenue when cash comes in. You
end up under-investing in your fast growing
business.
#4
A Lot Can Go Wrong
#4
What Can You Do?
● The choice is yours!
● Most small businesses choose cash-based accounting because it
is simpler and gives a clearer picture of cash on hand.
● As you grow, you should consider accrual-based accounting
because it is a better reflection of your company’s long-term
financial health. It also follows accounting’s matching principle.
#5
How do you avoid misclassifying employees and contractors?
#5
Pop Quiz!
Which of these workers qualifies as an independent contractor?
A. Newspaper carrier paid for each copy delivered
B. Knife salesman who works on commission, rents his own
office, and pays his own staff
C. Consultant who works part time for a marketing firm
“I only use contractors infrequently so I shouldn’t have to worry
about the rules” but…
You may be underpaying payroll taxes
Improperly classifying your employee as a contractor
can lead to significant fines
What Can Go Wrong? #5
● You would be underpaying taxes owed to the
government (employees can cost 25-30% more
than contractors)
● Nearly 30% of employees are misclassified as
contractors
● Your business could face serious legal and
financial penalties (states are cracking down)
#5
A Lot Can Go Wrong
#5
What Can You Do?
● Follow the following charts to best classify your employees.
● Work with a payroll provider that will properly pay payroll
taxes on behalf of your employee or contractor.
#5
#5
#6
What accounting and payroll reports should you keep on file?
“I filed the proper forms, I’m done!” but…
You may be legally obligated to keep certain
documents on file!
You could lose visibility into your business finances.
What Can Go Wrong? #6
● May not be prepared if you get audited
● Don’t keep the necessary employee and
employer tax records on file, leading to potential
fines or additional tax payments
● Lose payroll records; can’t deliver employment
verification
● May miss financial warning signs and
opportunities
#6
A Lot Can Go Wrong
#6
What Can You Do?
● Develop a few go-to reports and metrics for your business
● Know what documents you need to keep on file
● Develop a system for storing records
#6
Store your Tax Records
● Forms to store:
o I-9: 3 years
o W-4: 4 years after termination;
o Employer tax records: 4 years
● Store forms digitally:
o A cloud storage system enables you to store
forms digitally and access them any time
o Modern accounting and payroll providers will
store forms for you and your employees
#6
Develop a Dashboard
● Metrics to track:
o Which invoices are outstanding, and how old?
o How much have I spent, and on what?
o What work will I be able to bill for soon and for
how much?
● Reports to create:
o Accounts Aging
o Expense Report
o Profit and Loss
Questions?
zenpayroll.com/freshbooks
800-936-0383
freshbooks.com/zenpayroll
866-303-6061