Accounting errors can be costly, especially in construction and trade industries, where complex financials are the norm.
Here are the top five accounting mistakes business owners make, along with tips to avoid them and keep your finances on track.
Many construction and trade businesses work with independent contractors but overlook the importance of collecting Form W-9s.
Without this form, you can’t issue the required 1099 for contractors paid over $600 annually.
Missing the 1099 filing deadline can lead to penalties—starting at $60 if filed within 31 days and up to $630 for intentional disregard.
Avoid this by creating a contractor onboarding system to collect necessary forms before work begins.
Expense categorization errors are common in construction and trade.
Mistakes often include treating estimated tax payments as business expenses, which they’re not, and incorrectly categorizing entertainment and meal expenses.
Note that entertainment is non-deductible, while meals are generally 50% deductible unless for advertising or company events.
Another frequent error is categorizing owner draws as expenses.
For single-member LLCs and S-Corps, owner draws should appear on the balance sheet, not the profit and loss statement.
Payroll is complex, and errors here can inflate expenses and cause tax reporting issues.
Only the employer's portion of payroll taxes is deductible, but many business owners mistakenly expense the employee portion as well.
This incorrect reporting can understate taxable income and create audit risks.
To avoid this, break down payroll into wages, employer taxes, and employee taxes for accurate reporting.
Large assets like machinery or vehicles shouldn’t be expensed fully in the year of purchase.
Instead, they should be depreciated over their useful life.
Depreciation spreads the cost over time, aligning with the asset’s value to the business.
Failing to apply depreciation can reduce income one year and lead to higher taxes later or IRS penalties.
Use methods like Section 179 or Bonus Depreciation where applicable to optimize tax benefits.
Sales tax obligations are often overlooked in construction and trade.
Some states, like Texas, aggressively collect sales tax, and failure to remit can lead to penalties.
A related error is including sales tax in revenue, which overstates income.
Sales tax isn’t part of earnings and should be kept separate from revenue.
Also, some states require filing a sales tax return even if no taxable sales were made—be mindful of deadlines to avoid penalties.
Avoiding these common accounting mistakes can save your construction or trade business from penalties, audits, and financial strain.
Implementing best practices and regularly reviewing your accounting procedures will help maintain accuracy and support long-term financial health.
Q: What happens if I don’t file Form 1099 for my contractors?
A: Missing the 1099 deadline can lead to penalties, starting at $60 for late filing and increasing significantly for intentional disregard.
Q: Can I expense the full cost of equipment in the year of purchase?
A: No. Large assets should be depreciated over their useful life, although methods like Section 179 allow accelerated depreciation in some cases.
Q: Do I need to file a sales tax return if I had no taxable sales?
A: In many states, yes. Even if no taxable sales occurred, some states still require a return to be filed by the due date.
Schedule a Free Consultation to discuss your bookkeeping and tax needs and avoid costly mistakes.
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