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My client is self-employed. His main income comes from work done for the state. He bills the state and the state does a direct deposit into his business account. But the last several months, the state has been taking the money for back taxes and his net deposit 0. The garnished money is still income but it was used to pay back taxes. How do I record this income and assign the deductions appropriately? Thanks!
Add new>deposit
Line 1= income for work
Line 2 = (negative) owner draw as the back taxes are personal in nature
Net deposit = 0
Hi John, Thanks!
This looks so easy.
1) As a sole proprietor, state and federal taxes are personal? I have them listed as a business expense so it shows up on the P+L although I know they aren't deductible. Do I need to change this practice?
2) When I deposit, it asks for the bank account to deposit too. When there is actually a positive amount, it goes into the business account (of course) but when the total amount is offset for back taxes there really isn't any transaction with the bank. I didn't know how to deal with this so I put the funds into the bank register and then took them out again and then reconciled the transaction so there wasn't a balance change. This is the only way I could figure out how to categorize the income and then the tax payment but I am sure it's not accurate. Can you help me with this problem?
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