It’s not that I have anything against Miscellaneous. My life
so far has been a collection of Miscellany. However, it’s not a tax deductible
expense.
Look, I’ve seen a lot of tax returns. And nowhere on a tax
return is there a line item for Miscellaneous. Or Uncategorized Expenses, the
default QB account. It doesn’t exist because it doesn’t mean anything. As a
friend of mine just said, “I’ve never gone into a store and bought
miscellaneous.” (Thanks, Lori.)
Is the purchase supplies? Materials, office supplies,
franchise fees, burritos for the overnight crew, cleaning supplies, fixtures,
or what you have? Everything fits somewhere. If it doesn’t, is it really a
business expense? And no, those tickets you bought to see Moby don’t count
either, don’t think you can slip them under Miscellaneous and no one will
notice.
This isn’t to say you can’t create new accounts for your
expenses that don’t seem to fit anywhere. Of course you can – assuming they’re
legit business expenses that you can support during an audit. But we want to be
clear about what the expense is, and we want them to fit in a category that can
help you see on your P&L how you’re doing at any given time, and sticking
things in Miscellaneous doesn’t tell you a thing, does it? Except that your
business incurred expenses for . . . well, who knows what for?
You can’t run a business effectively with that sort of
non-specific thing going on. At year end, I want to look at my P&L and see
how much I spent on each category, and if I’m looking at Miscellaneous I’m
still wondering, “What did I spend THAT on?” Then I’d have to go back and look.
Rather defeats the purpose of doing the bookkeeping in the first place, doesn’t
it?
In addition to having clean financials that mean something
to you and whoever else has to look at them, there is no place for
Miscellaneous on a tax return. This is even more important to you, since we
really want to keep the IRS happy.
I recently met with an IRS auditor. You know, the official
guys. We had a good time, telling tax jokes and sharing taxpayer stories. Of
course, the tax return I handed him didn’t have Miscellaneous on it, or
Uncategorized Expense, or anything that wasn’t specific. Since it was pretty
clear, we went over franchise fees, just a quick calculation to see if the
total could be easily arrived at from sales. And guess what! It was!
But I digress. If there had been a line item for
Miscellaneous on there, I’m certain he would have asked for all the receipts.
And this is because: Miscellaneous doesn’t mean anything. You might as well
say, “yada, yada, yada,” for all the good it’ll do you.
Your bookkeeper’s job is to give you clean books from which
clean tax returns can be prepared. If you don’t have a bookkeeper, that doesn’t
mean the IRS doesn’t expect clean books just as they would from me. Keep your books clean, your receipts in order,
and your head above water. It takes just a little extra time, and is well worth
the effort.
(About those pesky receipts, the kind you can’t see because they
fade: Scan them, somehow. You can tape them to a sheet of paper and scan a full
sheet. You can get a receipt scanner. You can use something like Concur Breeze,
which allows you to scan your receipts when you get them, and it then uploads
so you have easy access to categorize them and get them into QB. You can make a
copy of them, if you’re into that sort of thing. But don’t count on a pile of faded
receipts to keep you out of trouble if someone should come looking.)
