Think QuickBooks Online and Turbo Tax Have You Covered?

How accounting software could be costing you thousands of dollars every year!

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When Jen Smith first started out as a real estate agent, she took the advice of her first broker and setup a QuickBooks Online (QBO) account to manage her bookkeeping. She had been using QBO for several years and felt like she had a pretty good handle on her bookkeeping but as soon as the year would end, she would have nightmares about her upcoming tax bill.

In effort to keep her costs down Jen had chosen to file her own tax returns using TurboTax as opposed to hiring a CPA. She had been using the profit and loss report generated by her QBO to prepare her taxes in TurboTax for the 5 years leading up to her joining ZanderFi.

One of the first things our small business advisors did when onboarding Jen was to tie out all the accounts on her balance sheet. Jen was familiar with her profit and loss statement but had never really spent time reviewing her balance sheet. As you can imagine, she was confused when her ZanderFi small business advisor asker her about the $67,000 balance in the “Marketing” Bank Account!

Turns out that when Jen had first setup her QBO account she created what she thought was a marketing expense account and immediately began coding various expenses to this account. The problem is, she didn’t really setup a proper marketing expense account. Jen made a common mistake when adding a new account and let the software default to the first account type which just happens to be a bank account.

For some crazy reason QBO defaults any new account to the bank account type so sadly this mistake is far more common than one would think:

Over a period of 8 years, Jen had coded $67,532.22 worth of expenses to a “bank” account. The problem with this is she completely missed those expenses on her tax returns because she was simply spitting out the profit and loss and inputting those figures into TurboTax.

Conclusion

Jen made two simple mistakes that costs her to miss out on deducting over $67,000 in legitimate marketing and advertising expenses. The first mistake was a common one we see all too often in QBO where users simply select the wrong type of account when setting up a new account.

The second mistake that Jen made was when she decided to forgo the costs of a professional CPA and instead prepare her own taxes using TurboTax. Had she bucked up and paid a little bit more for a professional, they most likely would have at least glanced at her balance sheet and should have noticed right away that something was not right with a “Marketing” bank account!

Moral of the story – Accounting software like QuickBooks, Xero, HR Block and Turbo Tax have had an incredible impact on the accounting function of small businesses. At the same time, these companies have spent millions of dollars over the last decade convincing entrepreneurs that all they need to do is purchase their software and viola, the bookkeeping and taxes are taken care of.

In reality, one needs to have at least a basic level of accounting knowledge to avoid costly mistakes because software like QBO and Turbo Tax are far from perfect.

If you are a small business owner that is concerned about your own bookkeeping and taxes reach out to one of our small business advisors today for a free consultation!