How do I enter corporate tax payments and reduce retained earnings due to the tax payments?

Hi there,

Thanks for reaching out to the Community. I want to make sure you get the best answer on how to enter the corporate tax payments.  To make sure this happens, I recommend reaching out to an accounting professional. If you're not in contact with one, I encourage searching for one on our website using this link here. Let me know if you have other questions. I'm here to assist. 

Here are the steps on how to record corporate tax payable.

Normally, you don't know what your annual corporate tax will be until a few months into the next year.  Once you know what your tax bill is, you need to make some JE's dated Dec 31/18, or whatever your previous year was.

First of all, make sure you have an Expense account in your COA called something like Corporate Income Tax Expense.  Then you need a Current Liability account called something like Corporate Income Tax Payable.

Once you know the amount of tax owing, you will make a JE dated Dec 31.  Make sure you have a Vendor called something like Receiver General - Corporate Tax.  Open your Corporate Tax Payable account register, and click on Add journal entry.  

Record an increase in the amount of tax that you owe the CRA.

Enter Corporate Income Tax Expense as the account in the JE.

This is the entry that will increase your expenses, thus reducing your retained earnings for the previous year.

When you pay the tax bill, go to your Bank Account and write a cheque to the Receiver General - Corporate Tax, and use the Corporate Tax Payable account.

If you are in the position where you are paying instalments all year to CRA for anticipated corporate tax, you would write your cheques the same as above and debit them all to the Corporate Tax Payable account.  You would carry a positive liability on the Balance Sheet until you make your final adjusting entry for actual Corp Tax at the end of the year.

Hope that helps - - good luck!