Miscellaneous expense is a term used to define and refer to 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 — all have their own account to track, and each expense records its associated costs every month.
Miscellaneous expenses are also costs to your business that do not fall into a specific category. So, what does that mean for your small business, and how do miscellaneous expenses operate in accounting?
Miscellaneous expenses definition in accounting
Miscellaneous expenses are small transactions that do not fit within the ledgers’ specified accounts. Miscellaneous expenses, meaning costs that don’t fall into a specific tax category, must be recorded and accounted for in your business’s general ledger account. If your items under miscellaneous expenses increase in size and usage, then the miscellaneous 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 warrant their dedicated ledgers, such as a sales ledger and utility ledger for incoming and outgoing expenditures.
The miscellaneous expenses category offers an easy and concise method to record small expenditures that are too insignificant to warrant their own account, which are 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 for business use based on your country’s regulations.
Miscellaneous expense examples that can be written off
Deductible miscellaneous expenses vary by country and are contingent on your local regulations. Below are examples of expenses that can be written off, although these vary based on your country:
- Clothing or job uniforms
- Advertising
- 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, can be considered for deductions. However, these miscellaneous clothing expenses can only be written off in certain instances and as dictated by your country’s regulations. A tax deduction, for example, 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 could not.
Advertising
For businesses with a small advertising budget, the cost associated with advertising can be categorized as miscellaneous and is eligible for deductions.
In most cases, advertising expenses are only deductible if they are associated with your local market. If you hire a firm based outside of your country, you may not be able to claim these advertising expenses 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 miscellaneous category.
Tools and supplies
Tools and supplies refer to items that are necessary for the operation of your services (such as small tool expenses) and can be categorized as miscellaneous expenses. Typically, tools with a lifespan of one year or less are worth less than $200 and would fall under this category.
Necessary tools that cost more than a few hundred dollars, and that 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 you can still categorize costs associated with finding and hiring a new employee under miscellaneous expenses. Job search costs can be considered for tax write-offs depending on your local regulations.
Home office supplies
Self-employed individuals and certain salaried employees can claim back the cost of home office supplies on their income returns. Due to the COVID-19 pandemic, the guidelines for claiming home office expenses have changed in most countries as more people are now working from home. Check IRS regulations for more information on what can be claimed as a home office expense.
Accounting and legal fees
Keep track of fees you pay for consultants as well as fees for services from outside professionals who advise you on business matters. These accounting and legal fees may be considered miscellaneous expenses, and may be tax-deductible.
- Your deductions include accounting, legal fees, and tax preparation fees, such as costs of preparing and filing your GST/VAT 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 or employment insurance premiums, you can consider them as miscellaneous business expenses.
- Before taking your 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 these fees to your property cost.
Interest and bank charges
Are you paying back a loan for expanding your small business? If so, most of your interest charges may be deductible as miscellaneous business expenses, including charges for any property your company has purchased. You may receive deductions for any fees or penalties you pay associated with a loan, as well as interest on most loans you make against insurance policies.
Consider your country’s options regarding tax treatment of interest payments and amortize them over five years. In some cases, you can add your interest payments to the cost of the property involved, instead of treating them as miscellaneous business expenses.
Keep in mind that, as a small business owner, you may have some restrictions, such as those on the amount of interest that’s deductible for purchases of vehicles and vacant land. If you have a home office, deduct your interest on your home mortgage as an expense related to the business use made from your home.
You may also be able to deduct all management and administration fees you pay for the operation of your small business, including bank charges. If your business accepts credit card payments and pays the corresponding processing charges, tracking these miscellaneous expenses in QuickBooks makes it easier to include them when filing your tax returns.
Claiming tax deductible miscellaneous expenses
Tax deductions can be made on miscellaneous expenses, as is the case with any other operating expense of a business. Come tax season, you can write off your miscellaneous expenses in the same way you claim your other business operating costs on your tax returns.
QuickBooks and expense tracking
If you are a small business owner or a self-employed person, miscellaneous expenses have to be itemized in your taxes, you can’t just take the standard deduction for them. 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 its various expenses, and customize its tax categories like miscellaneous expenses to ensure accurate and organized financial records. 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 for free today!
