Accounting might not seem like the most exciting aspect of running a business or managing your personal finances, but it’s often where small oversights turn into costly problems.
Even in an age of automated software and AI-powered financial tools, human judgment remains the deciding factor between financial stability and unexpected crisis.
The numbers don’t lie, but how we handle them can lead us astray.
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1. Misclassifying employees as independent contractors
A seemingly minor classification error can lead to major consequences. Misclassifying workers as 1099 contractors instead of W-2 employees invites IRS scrutiny, as it can be seen as an attempt to evade payroll taxes and benefits.
Businesses or households caught in this mistake face back taxes, penalties up to 100% of unpaid taxes, and potential lawsuits. For example, a tech startup misclassified its development team for two years and faced over $300,000 in back taxes and penalties.
Proper classification depends on control and independence, not convenience or cost savings. If you’re directing someone’s work, they’re likely an employee.
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2. Neglecting to reconcile accounts regularly
