Beware the temptation of miscellaneous
In setting up your record keeping systems it is important to have the right categories identified. But what those right categories are can vary from business to business. Certainly one way to get started is by using categories typically found on the IRS Schedule F. Not only will this help you transfer income and expenses easily to your tax forms but it will be a good fit with most record keeping software which will ease your transition to computerized record keeping.
One category you should watch carefully is Miscellaneous. While there will always be a few items that just don't fit anywhere else (or don't justify a category of their own) you should be take care not to let the miscellaneous category become too bloated. A general rule of thumb is that if you find your miscellaneous ballooning to 10% or more of your total expenses (or income) then you should reconsider creating some new categories.
Getting expenses out of miscellaneous and into a more descriptive category is much more time-consuming after the fact and you certainly don't want to be doing it the evening before you deliver all your paperwork to your tax preparer. The Farmers' Tax Guide can provide some time-saving tips in how to set up your records for maximum efficiency.
