What Your Accountant Wants You to Stop Doing

Running a business or managing personal finances becomes far more expensive when tax mistakes pile up. Most IRS penalties, audits, and cash-flow problems come from the same avoidable habits accountants see every year. Understanding what to stop doing can save you thousands in taxes, interest, and compliance issues.

Below are the most common mistakes tax professionals wish clients would eliminate and what the tax law actually requires instead.

1. Stop Mixing Personal and Business Finances

One of the biggest red flags in an IRS audit is commingling funds. When personal and business expenses run through the same bank account, it becomes difficult to prove which expenses are deductible.

Under Internal Revenue Code §162, business expenses must be both ordinary and necessary to be deductible. If you cannot clearly document that an expense belongs to the business, the IRS can disallow it.

What to do instead:

Open a separate business checking account
Use a dedicated business credit card
Reimburse yourself through proper owner draws or payroll

This not only protects deductions but also supports the legal separation of your LLC or corporation.

2. Stop Guessing Your Income

Many small business owners underestimate income because they only track what hits their bank account. The IRS uses cash or accrual accounting rules to determine when income is taxable, not when you feel like counting it.

According to IRC §451, income is taxable when it is received or earned, depending on your accounting method.

If you accept:

Zelle
Venmo
Stripe
Cash
Crypto
Checks

All of it is taxable, even if it never touches your main bank account. Payment processors now report this activity on Form 1099-K.

What to do instead:
Use proper bookkeeping software and reconcile all accounts monthly.

3. Stop Taking Deductions Without Proof

The IRS requires written records for nearly every business deduction. IRC §6001 gives the IRS authority to disallow any expense that cannot be substantiated.

Common deductions that often get denied:

Meals without receipts
Travel without mileage logs
Home office without square footage records
Vehicle expenses without business-use tracking

What to do instead:

Keep digital copies of receipts
Track mileage using an app
Maintain invoices and contracts
Keep bank statements and reconciliations

If you cannot prove it, you cannot deduct it.

4. Stop Paying Yourself the Wrong Way

S-Corp owners who take only distributions without paying reasonable salary are a major IRS audit target.

Under IRC §3121 and IRS Fact Sheet FS-2008-25, S-Corp owners must pay themselves reasonable compensation subject to payroll taxes.

Failing to do this can lead to:

Reclassification of income
Back payroll taxes
Penalties and interest

What to do instead:
Run payroll for yourself and then take distributions on top of that.

5. Stop Ignoring Estimated Taxes

If you are self-employed or earn pass-through income, you are required to pay taxes quarterly. Failing to do so triggers penalties under IRC §6654.

Waiting until April to pay often results in: