Excite Tax's answer for Utah owners: missing the January 31 Form 1099-NEC deadline, skipping the monthly reconciliation and mixing personal spending are the common errors.
Excite Tax's short list: business and personal money in one account, accounts never reconciled to their statements, contractor payments with no information return, employees paid as contractors, sales tax booked as income, and expenses backed by a bank line but no receipt. Each one is in the table below.
The tax the books missed, then a penalty on top of it. Section 6662 adds 20% of an underpayment caused by negligence or a substantial understatement, and the regulation counts a failure to keep adequate books and records as negligence. The worked numbers are below.
Most do-it-yourself errors come from trusting the bank feed: the same payment imported twice, transfers between the business's own accounts counted as income, whole loan payments posted as expense, and an uncategorized account nobody empties. None of them shows up until someone reconciles. The full list is below.
A cash balance in the books that differs from the bank statement, a negative bank or card balance the bank never showed, a suspense account that keeps growing, payroll or sales tax liabilities that never clear, and a profit figure the bank balance cannot explain. The full list is below.
Paying business costs from a personal account, losing track of what was spent before opening, picking an accounting method by accident on the first return, not setting money aside for estimated tax, and keeping no records behind the numbers. Each one, with the rule behind it, is below.
Bookkeeping mistakes fall into two groups. Some make the books wrong, and a wrong return is built from them. Others leave the books right but unprovable, which costs nothing until someone asks for proof. The table lists the common ones in both groups, with the fix for each.
Common small-business bookkeeping mistakes
| Mistake | What it breaks | Fix |
|---|---|---|
| Personal and business spending in one account | Every line has to be sorted twice, and personal costs slip through as deductions | A separate business account, with owner withdrawals recorded as draws |
| No monthly reconciliation | Duplicates, missing deposits and wrong balances stay hidden until year end | Reconcile every account each month |
| Contractor payments with no information return | The Form 1099-NEC due January 31 is late, wrong or never filed | Collect each contractor's name, address and taxpayer identification number before the first payment, and keep a running total per payee |
| Employees paid as contractors | Payroll taxes the business owed but never withheld or paid | Decide each worker's status before the first payment (more below) |
| Sales tax booked as sales | Income is overstated, and money owed to Utah looks like the business's own | Record tax collected to a liability (In Utah) |
| A bank line but no receipt | The payment is proven; the deduction is not | Keep the invoice or slip, above all for anything large or unusual |
| Owner draws coded as expenses | Profit is understated and the return deducts personal spending | Record withdrawals as draws, or as distributions in an S corporation |
| No opening balance, or the wrong one | Every later balance is off by the same amount, often into a negative | Set each account's opening balance to its first statement |
This is the most common mistake, and it makes every other one harder. The IRS tells a new business to open a business checking account and keep it separate from the personal one. When one card pays for groceries and inventory, each line has to be judged twice, once to decide whose it was and once to categorize it, and the personal lines that slip through become deductions that were never allowed.
The fix is a rule, not software. IRS Publication 583 says to use the business account for business purposes only, and to write checks to yourself only when withdrawing money for personal use. A withdrawal is then an owner draw, or a distribution in an S corporation, and never an expense. Using a personal account for business covers what to do when the accounts are already mixed.
The IRS says to reconcile the checking account each month. A reconciliation compares the books with the bank's statement and forces every difference to be explained. Skip it and the bank feed's errors stay in: a payment imported twice, a deposit that never arrived, a transfer counted as a sale. They are cheap to fix in the month they happen and expensive a year later, when nobody remembers what a payment was for.
A bookkeeping file that has never been reconciled is not a set of books yet, whatever its reports look like. What a bank reconciliation is walks through one.
Contractor payments are the deadline owners forget, because paying a contractor does not feel like payroll. Form 1099-NEC is due January 31, and for tax years beginning after 2025 it reports nonemployee compensation of $2,000 or more.
The bookkeeping mistake behind a missed form is usually upstream: contractors paid by card, app or cash, with no running total per payee and no taxpayer identification number collected at the start. In January the totals then have to be rebuilt from bank lines. Keep a payee list from the first payment and the forms become a report, not a project.
Late or wrong forms carry their own penalty. For 2025 information returns, the IRS charges $60 a return corrected within 30 days of the due date, $130 a return corrected by August 1, and $340 a return filed after August 1 or not filed, and a separate penalty applies in the same way to the copy owed to the contractor.
Paying someone as a contractor instead of through payroll is a classification decision, not a bookkeeping shortcut. If a business classifies an employee as an independent contractor with no reasonable basis, it can be held liable for that worker's employment taxes, and the relief provisions do not apply. The books cannot fix that decision after the fact; they can only record it. Fixing payroll tax mistakes covers correcting payroll returns already filed.
A bank or card statement shows that money left the account. It does not show what the money bought. The IRS says proof of payment alone does not establish a deduction, and to keep documents such as sales slips and invoices showing the cost was incurred. An owner who relies on the bank feed as the only record has half the evidence for every expense.
The IRS keeping periods are 3 years in general, 4 years for employment tax records, 7 years for a worthless-securities or bad-debt loss. What records the IRS requires has the full list.
Owners who keep their own books make a predictable set of errors, and almost all of them come from letting software post transactions nobody checks.
Two of these change the tax in opposite directions. Loan proceeds booked as sales overstate income, so the owner pays tax on borrowed money. A card payment expensed on top of its charges deducts the same spending twice, which understates income and is the kind of error the penalty below is aimed at. How to do your own bookkeeping sets up a routine that catches each one.
Each of these means the reports cannot be trusted yet. None needs a bookkeeper to spot.
One flag is usually a few months of cleanup. Several at once usually means reconciling from the last clean point, and the cleanup guide gives the order.
Bad books cost money three ways: tax paid on income that was never earned, deductions lost for want of proof, and penalties when the return built on them understates the tax.
there shall be added to the tax an amount equal to 20 percent of the portion of the underpayment to which this section applies... (1) Negligence... (2) Any substantial understatement of income tax
The penalty is 20% of the part of the underpayment caused by either ground. Negligence is not only carelessness on the return: Treasury Regulation §1.6662-3 says negligence includes any failure to keep adequate books and records or to substantiate items properly. A substantial understatement needs no fault at all, only size: an understatement larger than the greater of 10% of the correct tax or $5,000.
Two variations matter. An owner who claims the section 199A deduction uses 5% instead of 10% in that test, and a corporation has its own test: for a corporation other than an S corporation or personal holding company, the lesser of 10% of the correct tax (or $10,000 if greater) or $10,000,000.
Interest comes on top: it runs from the regular due date until the tax is paid. When messy books delay the return itself, the failure-to-file penalty is 5% of the unpaid tax for each month or part of a month a return is late, up to 25%. None of this counts the cleanup, which takes longer after the fact than keeping the books would have, because every transaction has to be traced from a statement instead of entered once. What catch-up bookkeeping costs covers that side.
(d) A seller is not required to maintain a separate account for the tax collected... (e) Taxes collected by a seller pursuant to this chapter shall be held in trust for the benefit of the state
The Utah form of the sales-tax mistake is booking tax collected as sales. Utah Code § 59-12-107 holds that tax in trust for the state and requires no separate account for it, so the books are the only place it is kept apart. Record it to a sales-tax liability, and each return's payment, due the last day of the month after the filing period, clears it. A late Utah return adds a penalty of the greater of $20 or 2%, 5% or 10% of the unpaid tax, depending on how late the return is.
Fix them in this order: reconcile the accounts, then correct the categories, then deal with any return filed from the wrong numbers. The cleanup guide gives the steps, the catch-up guide covers years rather than months, and the month-end close checklist keeps the books from drifting again.
Hand the books over when keeping them costs more hours than the business can spare, or when they stop agreeing with the bank.
Excite Tax keeps these books; the return they feed is reviewed and signed by a licensed CPA at TBD CPA LLC.
Ranked and explained on the sources page.