It doesn’t matter if you’re an individual or a business, good bookkeeping and accounting is important for success. This is why there are tens of thousands of tax accounts registered with the IRS. You may be wondering why bookkeeping is so important. Well, here are some reasons why you should be sure to balance your accounts, check twice, and keep excellent books.
You'll avoid some audits.
As your income increases, your chances of being audited increase as well. This is basic fact. Having over $200,000 gives you a 3% chance of being audited, and having over $1 million in gross income increases your chances to as much as 14%. This may not seem like high odds, but in 2014 alone there were 1.4 million people audited. You don’t want to be one of the next 1.4 million this year. Hiring a tax professional and practicing good accounting skills will help prevent you from being audited.
The other audits will be easier.
Sometimes, luck isn’t on your side. There is a chance you could be audited anyway, and on average a company can lose 61 hours during an audit. That is a lot of time that could be spent running your business to its utmost efficiency. If your books are in good order and your accounting is firm, the amount of time you spend during an audit will be drastically decreased. Hiring a tax accountant may decrease this amount of time even further.
You'll avoid penalties and sanctions.
Having excellent records means you won’t have to pay massive penalties or sanctions for mistakenly misrepresenting your finances. People make mistakes and there are penalties for those mistakes. You can get charged for various things like filing late or failure to claim certain assets. Good bookkeeping keeps track of your accounts payable and receivable as well as any assets you gained throughout the year. Good bookkeeping equates to no penalties or sanctions.
Good bookkeeping maximizes your deductions.
Sloppy bookkeeping can lead to overlooking legitimate tax deductions. If you do not know what you can and cannot deduct, you should hire a tax accountant or a certified professional accountant. Things such as travel costs, technology purchases, and more can be deducted from your taxes. But if you do not know what you spent your money on and where due to poor bookkeeping, you’ll miss out on all of these deductions.
Saves time when you file your taxes.
Filing your taxes is a laborious process. You have to list all that you spent, all of your deductions, your gross income, major life events, and more. If you’re like most people, you probably wait until the last minute to file. You can avoid a headache and stress by having excellent accounting of your finances. It should be as easy as inputting your information in the proper areas. If you have to figure out what qualifies for which box, you’ll spend several unnecessary hours trying to figure out the past.