Keep Good Records to Avoid Tax Mistakes in Your Cleaning Business

Filing business taxes can be a major headache. Keeping good records can help reduce the stress (and avoid tax mistakes). A solid record-keeping system allows business owners to maximize deductions, avoid over- or under- tax payments, and be on solid footing in the case of an audit. 

What's more, good records also give you a holistic picture of your business. They help you identify strengths and weaknesses and find ways to improve your bottom line.

Keeping business records can be daunting at first, and complicated tax laws cause many business owners to make mistakes. Avoid common problems with a little planning, and by breaking things down into manageable tasks.

Is your Cleaning Business Avoiding Tax Mistakes?

Tips for Avoiding Tax Mistakes

Don't avoid numbers
Many business owners hate bookkeeping and avoid it at all costs. That's a mistake. It's important to know and understand the numbers in your ledgers, and to not put off this important work.

If you're doing your own books, it's important to reconcile them at least once a month. By staying on top of this task, you won't have to wrack your brain trying to remember what each expense was or forget to capture and categorize tax deductions. It also helps you make business decisions based on current financial data.

Even if you have professional help, you should review your monthly financial statements so you aren't surprised by an unethical bookkeeper or accountant. Also, ask your pro to provide you with monthly profit-loss statements and any other data that can help you better understand how to improve efficiencies to boost profits. If you use a program like QuickBooks, you can generate your own financial statements.

Understand terminology
A common mistake among DIY bookkeepers is improperly categorizing expenses. It's important to accurately track income and expenses for a proper measurement of profitability. Plus, understanding the differences among categories can also result in significant tax savings.

As an example, equipment and supplies are not the same thing but many businesses treat them as interchangeable terms. Equipment is considered a capital expense and must be depreciated.  Supplies are items that are used up in a short period of time. 

Having an accountant is incredibly helpful in cases like this. They know the lingo and can advise you on tax laws, which change frequently – especially when it comes to depreciation.

Save receipts
The IRS does not require receipts for every expense, such as meal and entertainment costs less than $75, but that doesn't mean you don't need to track every expense. Even for the smallest expenses, you need a record of what you spent, where, who you were with, the business relationship, and the purpose. 

In the end, it's easiest and in your best interest to keep all receipts. Avoid later confusion by simply writing on the receipt about the reason for the expense. Also, make sure your receipts are date and time-stamped.

Track reimbursable expenses
As a small business owner you will no doubt have to pay for some expenses out of your own pocket or with a personal credit card. Don't make the mistake of losing track of those expenses. Failure to account for these expenses can result in lost money (not getting reimbursed) as well as lost tax deductions.

Correctly calculate auto deductions
There are different ways to calculate deductions for the use of a car or truck. You can either take a standard mileage deduction or a deduction for expenses, but you cannot mix and match. Find one that suits you and stick with it.

Be careful about gifts
You can offer gifts to clients and business associates but check with your tax professional to make sure you don't go overboard. There's a limit on the amount of deduction you can take for these items.

Have a backup plan
Technology makes bookkeeping and filing taxes more efficient. Of course you'll want to digitize your record keeping, but be smart about it. Technology can fail, and it's important to regularly backup your financial data to avoid potential losses.

Manage your cash
Most cleaning companies have a small amount of petty cash for unexpected purchases, like a last-minute run for paper towels or window cleaner. The problem is, many business owners don't know how to track these dollars. Set up a system for tracking petty cash kept on hand and how it's used. Get a lock box for the money and require and keep receipts for all disbursements.

Start early
Waiting until April 14th to start working on taxes is a big mistake, and one that will likely cost you in fines and penalties when you ultimately need to file an extension. Set aside time before the end of the tax year to start preparing for taxes. Your accountant may have suggestions for things you can do before the end of the year to ease your tax burden.

Look back at your previous year's tax return to determine what information you need to begin collecting. Or, ask your accountant for a checklist. Start gathering and recording data as your year-end statements come in so you're not frantically searching for everything at the last minute.

Keeping receipts and good records does not have to be a difficult task. Talk with your accountant or tax professional to see what records you should be saving and make sure to pay attention to the common mistakes listed above.