How to enter corporate tax installment?

Bookkeeping49 · ‎March 11, 2019

The company is making monthly corporate tax installments. How do I book this?

Anonymous · ‎March 11, 2019

Several options:

Setup a CRA income tax vendor and book payments to AP under that name, later post income tax as bill.
Create an IncomeTax Installments account as a 'current asset' - post installments here, later transfer to tax bill.
Create an Income Tax Due account under current liabilities and post both installments & tax bill there

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Anonymous · ‎March 11, 2019

Several options:

Setup a CRA income tax vendor and book payments to AP under that name, later post income tax as bill.
Create an IncomeTax Installments account as a 'current asset' - post installments here, later transfer to tax bill.
Create an Income Tax Due account under current liabilities and post both installments & tax bill there

Bookkeeping49 · ‎March 11, 2019

Thank you.

wayne4 · ‎March 11, 2019

I have setup the accounts however I don't understand what you mean in step 2 - later transfer to tax bill. How do you do this? Also how do you do step 3 - post both installment and tax bill there.

Anonymous · ‎March 11, 2019

Those are not steps - each a separate method for recording tax installments paid - choose only 1.

wayne4 · ‎March 11, 2019

OK I see. So using option 3 - I post my installments and Tax bill there. I expect the installments to offset the tax bill but all items just add to the total in the register. How do I make the installments pay against the tax bill. And how do I show a tax refund when the installments exceed the tax bill?

Anonymous · ‎March 11, 2019

To record the installments you will just be issuing checks to CRA and coding them to that account.
To record the tax payable create a 2 line bill: tax expense and (tax installment)
Since this is not an AP account there is no 'applying' - the net account balance is the net total.
If you have overpaid then the account balance will be negative. When the refund is received just post it to that same account.
To make this process more clear you can create 2 current liab accounts - tax due and tax installment - the installment account can be a sub-account

wayne4 · ‎March 11, 2019

Thank-you so much for your help.
When you say create a 2 line bill: Do you mean you enter the tax owing as line 1 and the tax installment equal to the tax owing as a negative amount as line 2?

How do I post a refund to the account?  Does this have to be done through a manual Journal entry?

Also I have a tax bill from the previous year which I paid using the Pay Bills feature.  This payment does not show up in the account. Why?
Do I have to go back and enter an offsetting negative amount in the original Bill to show this payment?

Anonymous · ‎March 11, 2019

Yes to the 2 line bill comment.
Post the refund simply as a cash deposit coded to the tax liab account - separate any interest as income.

For a prior year tax bill that can be handled as a 'normal' vendor bill (to tax expense) and subsequent bill payment - or just as a check.

RM6 · ‎March 11, 2019

Mike,

If I start my new tax year knowing that I have to pay instalments totalling say $10,000, would this not have to be recorded as a current liability? As I make payments, wouldn't the liability go down and the tax expense go up? Thus record the expense as it happens while showing a reduction in liability.

I see that you have suggested using a current asset type account but the payments aren't really an asset are they? It seems to me that as you make the payments you'd want to book the tax expense.

I am just trying to figure out how to record the transactions this way. I am not sure how to record the liability at the beginning of the tax year and then the combinations of entries after to make this happen.

Thoughts?

Anonymous · ‎March 11, 2019

In my view scheduled tax installments are not technically a liability - you do not have to pay them if you choose not to.
The tax amount due calculated on your tax return is the real liability - any and installments you made will reduce it.
Yes the installments are a current assets and can be shown as such (method 2). CRA will return them if you have no tax due at the end of the year.
If you want a tax expense to appear on your monthly P&L then you can enter your own estimate as a JE .

JimmyCorp · ‎March 28, 2019

Hey all,

I'm not an accountant or a bookkeeper by any definition. I'm running a small corp as a lending business and I do this to keep the liability separate from my personal finances.

I use quickbooks and I've learned a lot about accounting over the last year. One thing I can't seem to figure out is how to book in the taxes I just paid. I've read a lot, but im confused with all the different ideas.

Quick Breakdown:

1. I never paid installments and didnt have any related accounts for 2018.

2. I used Turbotax Corporate version and completed my return online with 'gifi' data pulled out of quickbooks.

3. I paid my taxes (as per the return) via my online banking.

4. For now, I have created a "Corporate Tax" expense to match the payment to something.

I'm wondering if/how it will affect retained earnings. Can I leave it as is and the expense will offset the extra retained earnings when I file next year's return?

Do I have to backtrack and record it in quickbooks in a more complicated way?

I appreciate your help.

Thanks,

Jimmy

Anonymous · ‎March 28, 2019

Yes tax accounting can be confusing - and its also very different by jurisdiction.
If JimmyCorp is Canadian private company the first thing you need to understand is that CRA doesn't care how much income tax you record in your books (if any) - their going to ignore it substitute their own calculated amounts. Some people record estimates, some people wait until the tax return is ready an then record the 'filed amount', some record nothing and wait for CRA to send a bill and record the 'assessed amount'. In all 3 of those methods the recording may be done in the tax year, or in the subsequent year when the return is filed - again CRA doesn't care. The only firm accounting rule is that cash transactions have to be recorded as they occur. This doesnt answer your question. The answer is the each company is supposed to create or adopt reasonable accounting policies, and then stick to them. In Canada that would usually be ASPE standards - which your accountant will know.

JimmyCorp · ‎March 28, 2019

Thanks Mike.

The current issue is that I am my accountant, lol, for now.

I figured with some natural intelligence and a bit of logic I could save myself some money until the revenues/profits grow and I can afford an accountant.

Without it being official advice, do you think I'm 'safe' if I book it in as a 2019 expense (since that is how I matched up the transaction at this point)? Or am I way off?

Anonymous · ‎March 28, 2019

Yes - go ahead and book it in 2019

I suggest you create 2 accounts for 'income tax expense' called 'this year' and 'last year' - that will help everyone understand whats happening.

JimmyCorp · ‎March 28, 2019

I'm assuming that 'this year' will be if I happen to make installments and 'last year' is obviously the payment I already made... correct?

Anonymous · ‎March 28, 2019

Yes

'last year tax' meaning > expenses i'm booking this year to settle income taxes due or estimated on last years earnings.

JimmyCorp · ‎March 28, 2019

Thanks for all your help.

I'll definitely check in with an accountant before next year's return is due to be filed.

Best,

Jimmy

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How to enter corporate tax installment?