Tagging is one of the innovations in QuickBooks® Online that allow you to label and organize your data with flexibility. Tags have long been available in email programs, photo libraries, and other applications, and now tagging is available in your accounting software! This new feature makes a great companion, and in some cases a replacement, for Classes, Locations, and Custom Fields. Previously, I provided a detailed look at how to tag transactions.
Why not use Classes, Locations, and Custom Fields?
Because Tags are available in all versions of QuickBooks Online, they open up additional subscription options for businesses. If you only need Classes or custom fields, but no other Plus or Advanced features, implementing Tags will be a cost-effective solution for many businesses.
Classes, available in QuickBooks Online Plus and Advanced, allow you to see income and expenses for different revenue streams in a business. They work well for creating a Profit & Loss report with comparison columns.
But, Classes do have a few drawbacks. Once you begin using Classes, every transaction needs a Class, even if it’s just an overhead expense, or you’ll have an “unspecified” column on your reports. Classes are also not good for time-based categories such as an event, because they’re meant to be permanent. You’re also limited to 40 classes in QuickBooks Online Plus.
Locations, also found in QuickBooks Online Plus and Advanced, allow you to examine the financial resources behind transactions. They work fairly well as columns on balance sheet reports, but every transaction can only have one Location, and some transaction types don’t have Locations at all. Locations are also not useful for expenses across multiple sites, and are also limited to 40 in QuickBooks Online Plus.
Custom Fields can be used for some of the same tasks as Tags, but not all. Custom Fields are great when you want to track information that’s unique to each transaction, such as a purchase order number on your invoice. Most versions of QuickBooks Online allow for three custom fields, although in QuickBooks Online Advanced, you have dozens, including drop-down lists that behave like Tags. Custom Fields can be assigned to transactions, items, customers, vendors, and employees, whereas Tags are only applied to transactions.
However, QuickBooks Online Advanced is expensive if custom fields are the only feature you need, so Tags become a viable option.
Tags have several benefits over Classes, Locations, and Custom Fields:
- You only use Tags when needed, instead of on every transaction.
- Tags are intended to be reused, to group transactions together for reports.
- You can assign many Tags to transactions instead of just one.
- By creating several tag groups, you can analyze transactions on multiple dimensions.
- All versions of QuickBooks Online include up to 300 grouped Tags, and unlimited ungrouped “flat” Tags.
- Tags are also searchable in the transactions by Tag window, found when drilling in through the Tags center under the gear.
Even if you’re using Classes, Locations, and Custom Fields, you can also apply Tags.
Limitations of Tags
Because Tagging is still new, it does have a few limitations.
Tags don’t print; they are intended for internal use only. The other options can all be toggled on and off to display in forms. At the moment, tags are not in the Developer API, and aren’t leveraged by third-party apps. In addition, tags also do not appear in QuickBooks Online Payroll.
The future of tags
While some might wonder about replacing Classes with Tags, I don’t see this happening any time soon. First, tags would have to be completely comparable with Classes, including the ability to apply Tags to line items. Second, it would also require an easy conversion for people importing to QuickBooks Online from QuickBooks Desktop, and that’s going to take quite some time for implementation.
In the present, Tags are an excellent way to add business intelligence to the accounting data you manage in QuickBooks Online.
Getting to know Tags
To understand the distinctions between Classes, Locations, and Tags in detail, to help you decide which would be the right solution for your needs, please take a look at this video by Hector Garcia.