Miscellaneous expense is a term used to define and cover costs that typically do not fit within specific tax categories or account ledgers. Regular, extensive, and ongoing expenses, such as payroll, office rent, and inventory supplies, will all have their own account to track and record associated costs every month.
On the other hand, miscellaneous expenses are costs to your business that will not fall into a specific category. So what does that mean for your small business, and how do misc. expenses work in accounting?
Miscellaneous Expenses Definition in Accounting
Miscellaneous expenses are an array of small transactions that do not fit within the ledgers’ specified accounts. They must, therefore, be recorded and accounted for in your business’s general ledger account. If these expenses increase in size and usage, then the misc. expense should be given its own account.
Businesses keep various types of journals and ledgers for accounting purposes and financial record keeping. Specific types of income and expenses will warrant dedicated ledgers, such as a sales ledger and utility ledger for incoming and outgoing expenditures.
The miscellaneous expense category offers an easy and concise method of recording such small expenditures that are too insignificant to warrant their own account, all lumped into one general account. This category is given its own aggregated line on an income statement account for clear and concise tax return filing purposes. A tax deduction can be made on miscellaneous expenses that were for business use.
Miscellaneous Expense Examples That Can Be Written-Off
Deductible miscellaneous expense examples include small costs that could cover such things as:
- Clothing or job uniforms
- Subscription services for work
- Accounting and legal fees
- Interest and bank charges
- Tools and supplies
- Job search costs
- Home office supplies
Clothing or job uniforms
Small, periodic or one-off costs for clothing required for your work, such as a uniform or protective clothing, could be considered for deductions. However, these misc clothing expenses can only be written-off in certain instances, as dictated by the Canada Revenue Agency. A tax deduction could be made for work clothes required for safety reasons, such as PPE wear. However, a new wardrobe of nice dress clothes for an office job cannot.
For those businesses with a small advertising budget, the cost associated with this service can be categorized as miscellaneous and is eligible for deductions.
However, such expenses are only deductible if they are associated with the Canadian market. If you hire a firm outside of the country, then those advertising expenses cannot be claimed back.
Subscription services for work
Tax deductions can be made on work-related expenses. Periodic publications and subscription services such as business journals or industry-related courses fall under this misc category.
Tools and supplies
Such items necessary for the operating of your services, like small tool expenses, can be categorized as miscellaneous expenses. Typically, tools with a life span of one year or are worth less than $200 would fall into this category.
Necessary tools that cost greater than a few hundred dollars and last longer than one year are generally considered capital expenses and must be considered for depreciation instead.
Job search costs
You may not be able to claim back the time you spent looking for the perfect employee, but the costs associated with finding and hiring a new employee will fall under misc expenses and can be considered for tax write-offs.
Home office supplies
Self-employed individuals, and in certain instances, employees can claim back the cost of home office supplies on their income returns. Due to the COVID pandemic, the guidelines for claiming home office expenses have changed, as more people are shifting their workspace to their place of residence.
Accounting and Legal Fees
Keep track of fees you pay for consultants and services from outside professionals who advise you on business matters, because those miscellaneous expenses are tax deductible.
- Your deductions include accounting, legal fees, and tax preparation fees, such as costs of preparing and filing your GST/HST returns and your income tax returns.
- If you pay accounting or legal fees for professionals to prepare an objection or appeal of an income tax assessment, Quebec Pension Plan or Canada Pension Plan contributions, or employment insurance premiums, they count as miscellaneous business expenses.
- Before taking the deduction, make sure you reduce the full amount of these fees by any reimbursements you receive.
You can’t deduct legal and other fees related to buying a capital property, but you can add such fees to the property cost.
Interest and bank charges
Are you paying back a loan for expanding your small business? If so, most of your interest charges are deductible as miscellaneous business expenses, including charges for any property your company bought. You get deductions for any fees or penalties you pay associated with a loan, plus interest on most loans made against insurance policies.
Check out your options regarding tax treatment of interest payments, and consider amortizing them over five years. In some cases, you can add your interest payments to the cost of the property involved rather than treating them as miscellaneous business expenses.
Keep in mind that as a small business owner, you have some restrictions, such as on the amount of interest that’s deductible for purchases of vehicles and vacant land. If you have a home office, deduct interest on your home mortgage as an expense related to the business use of your home.
Deduct all management and administration fees you pay for the operation of your small business, including bank charges. If your business accepts credit cards and pays processing charges, tracking these miscellaneous expenses in QuickBooks simplifies including them when filing your tax returns.
Claiming Tax Deductible Miscellaneous Expenses
Tax deductions can be made on misc expenses, just like any other operating expense of a business. Come tax season; you can write-off miscellaneous expenses in the same way you claim your other business operating costs on your tax returns.
Suppose your business is run as a sole proprietorship or partnership. In that case, you can claim back part of the cost of your miscellaneous business expenses on your personal income tax return. To do this, you will need to use Form T2125, Statement of Business or Professional Activities.
On page 3, Part 4 of the T2125 tax form, you will notice the deductible business expenses list. At the bottom of the list, on line 9270 in other expenses, write in miscellaneous expenses with the total amount on the right-hand side. Add this amount to your other business-related expenditures within the form, and calculate the total expenses for deduction purposes. File this form with the rest of your income taxes.
QuickBooks and Expense Tracking
To ensure you have tracked all of your expenses and business costs throughout the tax year, consider using accounting software with expense tracking features. By using QuickBooks Online, your business can automatically record and categorize your various expenses, customizing the categories, like miscellaneous expenses, to ensure accurate and organized financial records. And you can even claim deductions on tax preparation fees and software like QuickBooks when filing your taxes!
Come tax season, it will be easier to claim deductions and file your returns thanks to the expense tracking and automatic categorization features of QuickBooks doing the work for you. Why not try it free today?