Tracking business expenses seems like a no-brainer, right? You need to know how much money your company is spending, whether you're profitable, and what you can deduct on your taxes. When it comes to bookkeeping, we see business owners making the same mistakes over and over with respect to expenses. To throw an additional wrench in the works, the Tax Cuts and Jobs Act made some significant changes to what's deductible against business income. Unfortunately, misunderstandings about expenses can cause small and large problems. Sometimes it's just a matter of changing what's entered where, but we've seen the consequences spin out to prevent a business from securing a loan or even bring up legal action.
Here are the top four most common misunderstandings when it comes to business expenses:
- Business meals and entertainment are tax deductible.
- Asset is just another word for something the company purchases and uses to do business.
- Loan payments are part of monthly expenses.
- The business owner can go on payroll like all the rest of the employees.
Did you read any of the four statements above and think, "What's wrong with that?" If so, we invite you to download our free guide to understanding business expenses.
- How to handle your meals and entertainment expenses (tip: starting in 2018, the TCJA took away many deductions you may have taken in the past)
- How assets differ from expenses from a bookkeeping perspective and why it matters
- Where to book loan payments so your balance sheet is an accurate representation of your business numbers
- How paying yourself as the business owner is affected by your legal formation
Take it from us: your bookkeeper and CPA will be very happy when you can implement these changes and track your expenses properly.