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The two most common mistakes that small business owners make is not having insight into their financials and only talking to their accountant during tax time, a new survey reveals. The reason they make these mistakes, accountants say, is that owners typically are too busy taking care of business to take care of finances. For many, tax time is the only time they dive into their finances.
Xero, a small business accounting software developer, surveyed 500 U.S. accountants to compile tips to help small business owners take control of their finances during tax season and beyond. Topping the list of suggestions was a warning about the dangers of mixing business and pleasure. About half (45 percent) of the accountants surveyed said the most common mistakes businesses make that could trigger an audit was mixing business and personal expenses in deductions. A quarter (26 percent) said that excessive deductions to income sent up a red flag.
Three in ten (29 percent) said that a home office is the most commonly overlooked deduction for small business owners, while one in four (26 percent) said it is hiring new employees.
Tax tunnel vision is a widespread weakness, accountants said. One in four (26 percent) said not having ongoing insight into their financials is the most common mistake small business owners make when it comes to their taxes, while one in five (18 percent) said it is only talking to their accountant at tax time.
The accountants surveyed agreed that communications are a key ingredient in a creating a successful relations between a small business and its accountant. About half (47 percent) think small businesses should communicate with their accountant once a month in order to keep their business in good financial standing, while one-fifth think communication should take place once a week (22 percent) or quarterly (19 percent).
Overall, accountants polled said small businesses should communicate with their advisers on a more frequent basis to gain more control over their finances. Moreover, most accountants (71 percent) revealed that they're able to give more meaningful advice to small businesses that provide a real-time view of their finances to their accountants.