Back to Basics: The Bookkeeping Habits That Keep You Out of Trouble
Grant has seen handwritten books that were spotless and million-dollar businesses that tracked nothing. The difference isn't income. It's fundamentals.
“What bookkeeping habits actually matter for my taxes?”
The short version
- Have clean books. Track your income, track your expenses, and have a method to do it.
- Separate your personal and business bank accounts.
- Sloppy records can look like you're trying to hide income if you're ever selected for audit.
The short answer
Get back to the basics. Keep clean books, track your income and expenses, and have a system for doing it.
What I see
I see everything. Some people handwrite all of their bookkeeping, and it's extremely organized. They may not earn as much, but they make what they have work. Then I see people earning a ton of money who are sloppy with everything, and that makes things very difficult.
Business owners often forget the fundamentals that got them there: setting money aside for taxes, saving and investing, building a portfolio.
Why sloppy books are risky
I'm not saying everyone is trying to cheat on their taxes. But small business owners are probably the most exposed to audits, largely because of sloppy bookkeeping. Some don't track all of their income. Some don't track all of their expenses.
If you're selected for audit without those records, it can look bad, like you're hiding income. The IRS will look for receipts, and if they see an opening, they'll try to collect as much as they can.
How to get back to the fundamentals
For business owners, good bookkeeping is one of the biggest areas for tax savings, because it's how you make sure you're claiming every deduction. Don't overcomplicate it. Step one is usually just getting organized.
Separate your personal and business bank accounts. Pick a bookkeeping method. Put a system in place to track income and expenses. It'll take you far.
And if you're ever selected for audit, bring in a professional who can explain your situation to the IRS agent.
Frequently asked questions
Why are small business owners audited so often?
Often because of sloppy bookkeeping records. Sometimes they're not tracking all of their income or all of their expenses, and under audit that can look like you're trying to hide income.
What's the first step to cleaning up my books?
Usually step number one is just getting more organized. Separate your personal and business bank accounts, have a bookkeeping method, and have a system to track your income and expenses.
What should I do if I're selected for an IRS audit?
Contact a professional so they can thoroughly explain what's going on to the IRS agent.