During the final push through the recent extension deadlines, I had more than a few small business clients send me their books, all in good shape and ready to prepare their tax return – or so they promised. I think most tax preparers will agree, as deadlines loom closer, the level of detail at which we scour profit and loss statements for questionable items becomes a bit more high level (another good reason to get your tax materials in early!) But regardless of deadlines, I just can’t look at a set of books and ignore a $166,000 line item for “miscellaneous expense.” Now if this was a Fortune 500 size company, that might a different story. But unfortunately not when total expenses for the year are $200,000.
Now don’t get me wrong, a miscellaneous expense is almost a little bit exciting when you see it – particularly with a balance like that. Like a present on Christmas morning or a Wheel of Fortune mystery box, the suspense of opening the ledger to see what’s inside is almost palpable!
A few of my recent favorites:
- Federal tax payments (we all wish these were deductible, but alas…)
- Pebble Beach golf vacations (invite your CPA!)
- “Stick-up” (yes, literally a robbery)
You can see why miscellaneous expenses are such a treat for us accountants. But in all seriousness, if you’re doing your own bookkeeping, try to limit your use of this account. If you have a large transaction that you’re uncertain about how to categorize, you’re better off calling your CPA and asking the question. If you have non-deductible expenses in your miscellaneous account, and they end up being deducted, that will become a problem in the event of an audit. Particularly when those expenses start to add up, and before you know it over 75% of your annual expenses are simply “miscellaneous.”
Austin Bradley, CPA