NEWSLETTERS

DON’T BE A JENNY.

DO YOU EAT IRS PENALTIES & INTERESTS FOR BREAKFAST?

We know most business owners do, regularly.

In fact, most business owners are oblivious to the penalties they pay and usually neglect proper IRS guidelines. In more severe case scenarios, penalties alone cause most businesses to fold.

Jenny, a client of ours, is a prime example of that. Small business owner who owns a daycare service. She records her income by going through her statements and records her expenses by going through her statements like any average taxpayer would do. She provides us her money in and money out summary in a very organized way. Jenny got audited. Upon her audit, Jenny was not able to provide a few things the IRS needed. She did not have:

  • Proper Trial Balance

  • Profit & Loss Statement

  • Asset & Liabilities Statement

  • IRS Appropriate Journaling of Expenses

  • Copies of Receipts

To make matters worse, Jenny couldn’t explain how certain cash ended up in her personal bank account, which she also used for business. Because she had commingled funds, she couldn’t track how money moved or was spent. A $50,000 gift from her parents had no documentation beyond the deposit.

Her business, which earned around $90,000 in annual profit, triggered an IRS assessment of $25,000 per year for three years. With penalties and compounded interest, her balance ballooned to $115,000—and counting. The IRS, allowed to audit up to six years back, began reviewing the prior three years, adding another $130,000.

Total IRS liability: $245,000+.
Then came the California FTB audit: $90,000 more in state taxes.

All of it—avoidable with proper bookkeeping.

Why did this happen?

It all came down to one thing: bookkeeping. With proper, tax-ready records, Jenny’s audit nightmare could have been avoided. We warned her, but she believed she could manage it on her own. While some business owners can, most don’t have the time or discipline to meet the IRS’s strict standards.

We were able to fix a few issues and reduce some of the damage—but the time, stress, and cost of the audit were far more than she ever expected.

Are you Jenny? Do you feel like you might be a ‘Jenny’?

You can avoid what happened to Jenny. Bookkeeping is the backbone of any successful business—big or small. When done right from the start, it not only protects you during an audit but also sets your business up for long-term growth.

Good bookkeeping keeps you compliant with the IRS and gives you a clear view of your finances, helping you make smart, timely decisions. It's not just about staying out of trouble—it's about running a stronger, more profitable business.

Click the button below to schedule a free Discovery Call by completing our Bookkeeping Client Form. A team member will contact you to arrange your appointment.