Itemizing Revenue is a Requirement – Fact or Fiction?

As an Accountant, I have more than a few pet peeves, some of which I will talk about from time to time here on our blog.

Today’s pet peeve is the “you must itemize your revenue/income accounts for Uncle Sam”. FICTION!

Let me explain, I am not saying it is a bad idea. As a matter of fact, it is a good idea for managerial purposes (I will tell you why a bit later) but for IRS or Tax Reporting Requirements it is not required.

On US tax returns there are TWO Income tax lines –

• Gross Revenue
• Returns and Allowances

That’s it. There is no “subscription revenue” line, there is no “value added goods revenue” line, there is no “my-mommy-gave-me-a-tip revenue” line. You know why? The IRS does not care!

Gross Revenue is all the monies that has come in.

Returns and Allowances are any monies that you have refunded to customers or clients.

You don’t have to categorize ANY of your income for the IRS as long as you know the number.

There. Issue resolved.

Now, just because it is not required, does not mean it is not a good idea. I usually have my customers segment their revenue in one of two ways:

By Product

OR

By Category/Type of Product/Service

So, for example, let’s say you sell three books:

• The Art of Basket Weaving
• How to Braid Your Hair
• How to Get Your Husband to Clean the House

You may want to segment your income out by product. Why? This will help you see what book sells best and what your book-to-income ratio is.

Likewise, let’s say you are a Business Coach/Consultant/Entrepreneur. You could have various segments of your business: Coaching Income, product Income (from ebooks you have written), advertising revenue from your blog. It may not be beneficial for you to itemize out every ebook you have written (although you can), but you should definitely figure out which segment of your business does best!  So consider the following income categories:

• Coaching and Consulting
• ebooks and Products
• Advertising Revenue

However, remember that with any good accounting system you can get even more detailed. It could look something like this:

• Coaching and Consulting

o    Monthly Retainers
o    Hourly Clients

• ebooks and Products

o    Twitter ebook
o    How to be a millionaire video series
o    VIP Membership Revenue

• Advertising Revenue

o    Google AdSense
o    Affiliate Income
o    Banner Ads

See? You can get as detailed as you want, which is GREAT for managing, operational activities and income projections. You’ll make better decisions, you’ll be able to focus on your strengths and mitigate your weaknesses, and you’ll know where to invest your time and effort. But when it comes to your taxes, it has probably surprised you to discover that less detail about your revenue is the best practice.