Significant penalties and interest can be issued by the government if you are found to have received income and not reported it on income or sales tax returns. Using an accounting program with automatic bank feeds helps you make sure you have categorized all your business’s income properly.  It is also important to reconcile your records with the bank statement each month because bank feed errors occasionally happen.  Another important step is to always deposit cash that your business receives into the bank.  If you receive cash from a customer and then spend it instead of putting it in the bank, it becomes hard for you to track and looks suspicious to the government.

As you know there are many types of tax deductions for your business, but you must be able to prove that you incurred the expenses you claim if you are ever audited. Bank and credit card statements generally are not enough proof because they do not state the actual items that you purchased.  Many apps today allow you to take pictures of your receipts with your smart phone, keep them organized, and even upload them directly into your accounting software.

Many small business owners have protected their personal assets by starting an LLC or corporation. To maintain that liability protection, you need to have bank and credit card accounts that are in the business’s name.  If a court sees that your business and personal transactions are all mixed together, it may “pierce the corporate veil” and hold you personally liable for the business’s debts.

Have a bookkeeping system in place that allows you to keep track of bills that are coming due and uncleared bank transactions. Being disorganized can eat away at your profits by forcing you to pay unnecessary late fees, bank service charges, and interest.  Paying your bills on time and avoiding writing bad checks keeps more money in your pocket.

Keeping up with sales tax, payroll tax, estimated tax, tax deductions, capital gains tax, local tax, and state tax can certainly be overwhelming. Just when you figure out one regulation it changes, or a new one is added.  The time and resources you invest in learning the regulations can save you from losing your hard-earned profits to stiff penalties though.  Connecting to tax professionals and other experts either online or in person can definitely help, but in the end, you as the business owner are responsible to know and follow the regulations.