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Frequent Contributor *

How to categorize payments for estimated quarterly taxes

Hi all, new to Quickbooks and have some basic usage and accounting questions about properly categorizing tax paments.  It seems to me that these payments should NOT be considered business expenses, as this would lower my taxable income for the year and, ultimately, change that amount of my estimated tax liability (for which I am trying to accurately pay).  Am I correct to assume that estimated tax payments ARE NOT business expenses?

 

What is the proper way to categorize these payments/withdrawals from my business accounts?

 

Also, I will be making installment plan payments for my remaining owed 2018 tax liability...would I categorize these payments the same as the estimated tax payments?

 

Thanks so much for clarifying this!!! 

4 Comments
Established Community Backer ***

Re: How to categorize payments for estimated quarterly taxes

The answer to this question depends on your business entity formation. It is advisable to consult with your personal Accountant or CPA on this important matter. As an example, a Sole Prop. and an LLC cannot deduct their quarterly self-employment tax payments as a business expense. But an S Corp and and C Corp can deduct payroll taxes paid as a business expense.

 

As a Sole Prop. or an LLC you are taking draws from your business profit income and paying quarterly estimated self-employment tax to the IRS. The draws are Balance Sheet transactions.

Frequent Contributor *

Re: How to categorize payments for estimated quarterly taxes


@ReginaMarie wrote:

The answer to this question depends on your business entity formation. It is advisable to consult with your personal Accountant or CPA on this important matter. As an example, a Sole Prop. and an LLC cannot deduct their quarterly self-employment tax payments as a business expense. But an S Corp and and C Corp can deduct payroll taxes paid as a business expense.

 

As a Sole Prop. or an LLC you are taking draws from your business profit income and paying quarterly estimated self-employment tax to the IRS. The draws are Balance Sheet transactions.


Thanks!

I am a Sole Prop.

 

In Quickbooks Online, could I create a sub-account under the "Owner's Pay & Personal Expenses" Equity account and name it "Estimated Quarterly Taxes" and then categorize all payments as such so as to track the amount paid specifically for estimated taxes??

 

Thanks so much!

 

Moderator

Re: How to categorize payments for estimated quarterly taxes

I appreciate you getting back on this thread, @cetanorak.

 

I'd love to help answer your question about creating sub-accounts in QuickBooks.

 

Yes, you can create sub-accounts under a parent account. However, the types of sub-accounts must be the same as the parent account type. For example, you cannot use a liability account as sub-account for an expense account.

 

As our Community backer suggests, it'd be best to consult your accountant to verify the categorized accounts depending on the type of business you have. This way, you can properly categorize your payments/withdrawals from your business accounts.

 

You can also refer to our business discussion knowledge base to know more about the resources for getting started with QuickBooks Online: Getting started with QuickBooks Online.

 

Let me know if you have other questions about using sub-accounts. I'm here to help however I can.

Frequent Contributor *

Re: How to categorize payments for estimated quarterly taxes

In the Chart of Accounts, for the account type  Equity there are a number of detail types that can be chosen for an account.  One is Estimated Taxes and another is Personal Expenses.  It would make sense that Estimated Tax Payments would be assigned to the Estimated Taxes equity category but what about Federal Income Tax Payments?  Would that be assigned, also, to Estimated Taxes or Personal Expenses?