5 Common Bookkeeping Mistakes You’re Making (And How to Prevent Them)

If you’re reading this, you’re likely doing your bookkeeping, and something isn’t adding up—or you’re worried that something won’t add up. You’re using accounting software (and if you’re not, I recommend starting there first), and although you’ve gotten used to the basics, you’re wondering if you’re doing it right.

I promise that you’re not the first or last to question whether you’re doing things correctly, especially when it comes to bookkeeping.

In fact, it’s a good question to ask! Making bookkeeping mistakes can lead to mistakes in your taxes, misconceptions about your profit, and blur the line between your personal and professional finances.

So, while you’re here, let’s walk through some of the most common bookkeeping mistakes I see as a bookkeeper (and how you can prevent them).

Common Bookkeeping Mistakes to Avoid And How to Prevent Them

The best time to work on catching any mistakes in your accounting is during the summer when bookkeepers don’t wish for more hours in the day (as they tend to do during tax season). We also all know how stressful the beginning of the year is, especially as tax filing season creeps around the corner.

Still, you should make it a routine to check for bookkeeping mistakes and focus on creating healthy habits to prevent them. Here are the most common mistakes I see:

#1. Neglecting to Reconcile Bank Statements

If your bookkeeping reports are off and you don’t know why, this is one of the main culprits! You should be reconciling your accounts once per month—aka comparing your account records, such as your credit cards and bank statements, to what you have in your accounting software to make sure you come to the correct balance.

#2. Failing to Keep Receipts or Document Expenses

Did you know that an IRS audit can include returns filed within the last three years—if they find a substantial error, they can examine additional years. Even if it’s an honest mistake (and not tax evasion), the IRS will need to see your receipts, and you’ll need to have them ready!

#3. Not Setting Aside Money for Taxes Throughout the Year

There are two issues with this one…

1. Most businesses must make quarterly estimated tax payments, which, if missed, can result in fees and penalties. 
2. You may not have enough money in your bank account to cover your taxes at the end of the year…also leading to fees and penalties.

Set aside a percentage of your profits for your taxes now so you’re not panicking later! I recommend 30% of your earnings. This is a conservative figure, and I recommend you consult with a licensed tax professional, as every situation is different.

#4. Mixing Personal And Business Finances 

You need a business bank account separate from your personal, no commingling funds! Plenty of business bank accounts are free to set up and don’t require a monthly maintenance or transaction fee (like Relay). The sooner you can separate your finances, the better!

#5. Incorrectly Categorizing Expenses And Income

Misclassification of a transaction can result in inaccurate reporting, which can impact what you’re expected to pay for taxes and what you’re expecting in deductions. The sooner you catch a misclassification, the easier it is to recalculate (which is why I recommend reconciling your accounts once per month).

What’s The Best Way to Prevent Bookkeeping Mistakes?

Healthy bookkeeping habits and—you guessed it—a bookkeeper! Bookkeepers do more than manage transactions and keep up with what you’re making vs. spending; they make sure that you’re informed about the financial side of things. 

For example, bookkeepers can track how much you should be setting aside for taxes, recommend an amount to pay yourself as an owner and give insight into what services are most profitable for you (among other things).

If you want more tips on how to keep your books in good health (avoiding those common mistakes), follow me on Instagram @thetaxkeeper, or, if you’re looking to hand off your bookkeeping, get in touch! I’m happy to help.