Creative Accounting

It's tax season here in the U.S. and folks everywhere are scrambling to get their returns completed on-time. The good news for the procrastinators (which is most of us!) is we get an extra couple of days this year. Normally, taxes have to be filed by April 15th and no later. But when the 15th falls on a Sunday, the Post Office is closed so they bump it to the following Monday. But this year the city of Washington D.C. is celebrating Emancipation Day, to celebrate the signing of the Emancipation Proclamation by President Abraham Lincoln in 1862. That means the city is closed on that Monday so the deadline is on the 17th. Two more days to put it off!



Tax season is also a time when folks do a little creative accounting when it comes to their finances. Creative accounting is an idiom that comes from the business community. This term refers to the presentation of a company's financial health in a way that, although usually legal, ignores issues that might be negative, and instead makes the results appear better than they are. For example, when the results of SNAP are reported, it wouldn't mention the amount of users that would rather use Instagram, or how their product is very hard to use for normal users. Those are negatives that could dissuade investment. They will instead talk about what growth they have had, and maybe talk about their expectations for a better future. This could be seen as a form of creative accounting, a a way to make them look better.

When it comes to a person doing their taxes, you will sometimes here this expression when it comes to how they itemize their expenses. A deductible expense for business can cover a wide variety of costs. Some costs are obvious, a new work computer, a printer, advertising. Others are less obvious. A newspaper or magazine subscription can be a business expense. So when folks are listing out all of the tax deductible expenses, that results in a lower tax bill. Because of this financial incentive, some less honest people will do some "creative accounting" and make it seem more of their personal costs were work related. For example listing a vacation to the beach as a business expense, or that sports car as a company vehicle.

So, the next time you hear someone talk about creative accounting understand it's not generally seen as a positive. Especially if it's your account talking about your taxes!