Books Blog

Common Bookkeeping Mistakes Made by Financial Advisors

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Financial advisors are well-versed in the art of holistic financial planning and investment management. But what happens when it comes to their own bookkeeping? Often times, financial advisors aren’t as on top of their business’s accounting.

That’s because keeping good books requires something that many advisors don’t have - time. Keeping good books requires time to get organized and to categorize expenses correctly. A busy advisor often just doesn’t have the hours to dedicate to the task!

Keeping good books is a key to doing good business. But you don’t know what you don’t know, and you don’t have the time to learn everything about accounting while running a business. In many cases, the small accounting mistakes financial advisors make are what sink the ship in the long run.

The first step to tightening up your accounting process is understanding what errors you’re making and how to correct them. Learning to avoid these critical mistakes will not only save you money - you’ll save time, and likely avoid any unfortunate and time-consuming audits, as well.

Mistake #1: Tracking Mileage

When you’re a business owner, there are a few myths about tax deductible expenses you have to watch out for. One of these is that auto expenses and all mileage are tax deductible. In reality, the rules are a little more detailed.

To track your mileage for reimbursement, you need to have accurate tracking information - not just estimate the distance you’ve travelled. At FA Bean Counters, we usually recommend that advisors start using MileageIQ or a similar app to keep a careful record. In 2017, the total reimbursement is 0.535 cents/mile. However, this number changes year to year, so make sure you’re always working with up-to-date information.

It’s also a common misconception that all automobile or transportation expenses are tax deductible - which isn’t accurate. Unless your vehicle is owned by your company, your auto expenses aren’t tax deductible. In most situations, a financial planning firm doesn’t own vehicles outright. So, you wouldn’t be able to list an oil change or new tires as a tax deductible expense. You also can’t list all of your mileage or transportation costs as tax deductible expenses. Any mileage tracked has to be business-related. If you take public transportation, you can only deduct the total travel expenses for business-related trips.

Mistake #2: Mixing Business and Personal Expenses

This is by far one of the most common mistakes that financial advisors make when it comes to their bookkeeping. Although many advisors start out with the best of intentions by setting up separate business accounts or credit cards, things often fall apart over the course of time.

It’s usually understandable - you’re out to eat with family and grab the wrong card when it comes time to pay. Or maybe you’re making a business purchase online and your personal card is always saved in the system. However it happens, it’s always a mistake.

When you mix your business and personal expenses, you’re more likely to invite extra attention from the IRS - and your compliance regulators. Additionally, if you’re a LLC or S-Corp and you co-mingle funds, you pierce the corporate veil which opens any shareholders or owners up to be liable for business debt and liabilities.

Finally, as your business grows, mixing business and personal expenses becomes increasingly complicated. When you’re just starting out, you won’t have very many expenses. So it may not seem like a big deal to use a personal card to cover them. But as you scale, your expenses will scale, too. This can make sorting your expenses a real headache - and both you and your accountant will be frustrated when trying to wade through a list of expenses that aren’t clearly personal or business-related.

Mistake #3: Taking a Salary

There are so many different rules around how you can take a salary as a financial advisor. First, if you’re an S-Corp, you do need to take a fair and reasonable salary regularly. That means you do need to be paying yourself consistently, even if it isn’t very much at the start. Of course, it also means that you can’t overpay yourself. You can take distributions, but again, the IRS will absolutely notice if you’re overpaying yourself.

If you’re a LLC, sole proprietor, or sole owner, you don’t process payroll as an S-Corp would. Any distributions you take show up on your balance sheet, not your P&L report. You should also ensure that you’re making quarterly tax payments - and no, these aren’t a business expense. Either pay them from your personal funds or mark them as a distribution or owner’s draw.

Mistake #4: Client Gifts

Many financial advisors give gifts to their clients - but there’s an often-forgotten rule to play by. The first is that you can only deduct $25 per client as a tax deductible business expense. If you spend more than that, it isn’t a tax deductible expense after the initial $25. This is often one of the most difficult rules for financial advisors to remember, especially if they’re planning on doing something extra special or unique for each client.

That being said, the IRS states that any incidental costs are not included in that $25 limit. That includes postage and packaging. So, you don’t have to worry about the cost of shipping holiday gifts to your clients as being non-tax-deductible.

Finally, there are some ways to reap a better tax benefit when it comes to client gifts. If you don’t feel you can come up with a meaningful gift for clients in the $25 tax deductible limit you have two choices:

  1. Spend more on the gift without deducting the rest of the total expense.
  2. Purchase your client something that falls under the “entertainment” tax deductible category.


For example, you could potentially purchase your client tickets to a local theater or sporting game as a holiday gift or thank-you, and those are deductible up to 50% of the total cost. This could help you give a “better” gift without shouldering so much of the expense.

That being said, it’s a good idea to speak with an accountant about expenses like this. They’ll be able to guide you on the best ways to show your client appreciation without breaking the bank (or getting in trouble with the IRS).

Mistake #5: Knowing What’s Deductible (And What’s Not)

As a business owner, there are many expenses that are tax deductible. It may seem as though the things you can record as a tax-deductible expense are endless! However, this is not the case. And many financial advisors get carried away when recording tax-deductible expenses.

One common area that our Bean Team sees issues with is eating out. Not all meals you have while on-the-job are deductible. For example, the cup of coffee you grabbed on your way to the office isn’t deductible. Neither is the lunch you ordered in while you were working. Additionally, not all meals you eat with clients are tax deductible. If you take a client out to eat, or for coffee, you can only deduct 50% of the total cost - and only if you buy both yours and the client’s meal.

When in doubt, stay organized. Make careful notes about who you’re taking out to eat, why you’re meeting with them, and when you go. This will help to solidify expenses as tax-deductible when it comes time to file.

A few other common bookkeeping mistakes are assuming that certain clothes or haircuts are tax deductible. Although it’s often important to look your best for a conference, presentation, or client meeting, these expenses aren’t technically business expenses - and therefore aren’t deductible on your taxes. The only situation in which clothing can be an expense is if you can’t wear the item to another event. An example of this would be a military uniform (not a suit).

Mistake #6: Setting Up Your Own Books

When you’re just getting started as a financial advisor, the temptation is to do everything yourself. This often seems like a good way to keep costs low and streamline your expenses. However, the mistakes you could potentially make if you set up your books yourself can turn out to be costly and harm your business in the long run.

It’s critical that you chat with a bookkeeper or accountant to help you get (and stay) organized as your business grows. They’ll be able to help you track expenses and list what’s deductible (and what’s not). They’ll also help you save money in the long-run by digging deep to find the best ways to save your business money on your taxes, or highlight where you’re overspending.

Don’t Go It Alone

You don’t have to do everything yourself - outsourcing business tasks that don’t generate revenue is an excellent way to free up your time to take on more clients, prospect for new business, and grow current client relationships. Outsourcing your bookkeeping is a good first step to take when trying to build a team of contractors to help your business run smoothly.

A good accountant can assist you with staying organized, keeping track of expenses and receipts, filing your taxes, and keeping books up to date in case of an audit - either by the IRS or compliance regulators.

At FA Bean Counters, we work with advisors in all stages of their career! From new firm setup to tax-time cleanup, we offer a wide range of services that can get you started (and keep you going) with better bookkeeping.

Don’t continue to make these common bookkeeping mistakes - contact the Bean Team today!


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