Can someone please be particular with the journal entries for recording Federal Income Tax Payments in QuickBooks for the following business entity types? Also, can someone clearly explain what the "Taxes Paid" Expense account in QuickBooks is for? Like some examples for when it is ok to use this account to record certain taxes for certain structured businesses? Seems like the "Taxes Paid" account should at minimum be treated as an "Other Expense" account and not a main "Expense Type" account. Too many times, we see business owners who are single member LLC's or Sole P's putting their Federal Income tax payments under this account, and that is always wrong for these business structures as I understand it. That said, it can be nice holding an account throughout the year until it is properly re-coded to the right Equity account. So how can we clearly help QuickBooks users understand when (if ever) they should post transactions to this account (an account BTW that QuickBooks autogenerates for most businesses in their COA)? Please do not talk about Payroll taxes (that is a totally separate issue lets keep this on Federal income taxes - Not Sales Tax, just Federal Business Income tax only please). We need to be clear on how to book FEDERAL INCOME TAX payments in QuickBooks for the different entities. As I understand it, basically, any businesses that are not a C Corporation are going to put Income Tax payments for the business through an Equity account, right? Be it Owners Draw, Partner Draw, or Distribution? But can someone clearly type out these journals for each business structure and what it is for the C Corp's out there? See list of structures to add journals and explanations for:
Sole Proprietor (1040)
LLC Single Member (1040)
Partnership (1065)
LLC Multi-Member (1065)
LLC Single Member with S Corp Election (1120S)
LLC Multi-Member with S Corp Election (1120S)
S Corp (1120S)
C Corp (1120)
For example:
Sole Proprietorships
Debit: Owners Draw (Equity)
Credit: Bank Account (Asset)
Because Sole P business owners pay tax personally on their 1040, the "Taxes Paid" Expense account on the Profit and Loss should NOT be used to record Federal Taxes paid on their business financials in QuickBooks (right?). These are not a write-off to the business, they are a cost but are more of an accrued liability. If the business account does pay the Federal Tax, then the offsetting entry should go to "Owners Draw" Equity as if these funds were paid directly to the business owner. In the future, the business should simply pay the business owner's personal account (same journal basically as the Debit to Owners Draw Equity and a credit to the Bank Account Asset), and then the business owner should use these transferred funds that were put into their personal bank account to pay the IRS directly for the Federal Tax payment, from their personal account. So if you are a Sole Proprietor, you will never use the "Taxes Paid" Expense account to record Federal Income Tax payments for your business, right?
What is missing or needs to be corrected in the above if anything as it relates to Sole P's?
What are the journals and scenarios for C Corps, S Corps, LLC's, and Partnerships?
When is it OK to use the "Taxes Paid" Expense Type account?
Should everyone change the "Taxes Paid" Expense type account to an "Other Expense" type account so it is below the Net Operating Income line?
