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How do you record S-corporation estimated tax payments?

What is the proper way to record an estimated tax payment that happens over multiple years in a single owner S corporation.

Transactions:

  • 6/15/2017 - Payment to IRS for 2nd quarter tax estimate
  • 6/15/2017 - Payment to State for SUTA
  • 1/15/2018 - Payment to IRS for 4th quarter tax estimate
  • 1/15/2018 - Payment to IRS for FUTA

Options:

  1. Record payments to a SUTA, FUTA, or Federal Withholding expense category. This reduces net income when it is a pass through entity. Reporting isn't accurate since it misses the 2018 payments for 2017.
  2. Create an Asset account for Prepaid Taxes. Payments through the year get logged into this account. At the end of the year create a journal entry that pays the SUTA, FUTA, FICA expense accounts. The balance sheet will report a negative asset balance, so shouldn't a liability account be used instead?
  3. Create a liability account for Taxes Payable and a journal entry for the end of the year for total taxes owed. Payments apply towards the liability through the year and the next. Final journal entry tax payment at the end of the year that pays the SUTA, FUTA, FICA expense accounts from the liability account.
  4. Create an equity account for Owner's Estimated Taxes. Payments reduce the equity through the year. Create journal entries at the end of the year that pays the SUTA, FUTA, FICA expense accounts.
7 Comments
Established Community Backer ***

"What is the proper way to record an estimated tax paymen...

"What is the proper way to record an estimated tax payment that happens over multiple years in a single owner S corporation"

You might be a Sole Shareholder, but Corporations have no Owner.

S Corps do not have any income tax responsibility; Estimates are paid for your personal 1040ES. So, that isn't Corporate Expense; that is a Shareholder Distribution, from Equity = you took business funds to use personally (and we don't care why or how they are going to be used), as this is a Pass Through Entity Type.

Your other issues relate to Payroll. If you work for the business, you have to be paid through payroll, before taking funds as Distribution. You can see the IRS explanation in my attachment.

Let's break this out for you:

"Transactions:

  • 6/15/2017 - Payment to IRS for 2nd quarter tax estimate <== Personal
  • 6/15/2017 - Payment to State for SUTA <== Part of Payroll
  • 1/15/2018 - Payment to IRS for 4th quarter tax estimate <== Personal
  • 1/15/2018 - Payment to IRS for FUTA <== Part of Payroll

Options:

Record payments to a SUTA, FUTA, or Federal Withholding expense category."

While these are Payroll, the Fed Withholding is Not An Expense. Here is "payroll math:"

Gross wages + Employer share of taxes

Fed Income tax withholding is a reduction of the Employee's takehome; that's why it is not company Expense. You already have Gross Wages as expense. Now you will be doing the banking for payroll. Like this:

If I am supposed to earn $10 an hour for a 40 hours week, you know I don't get a $400 check. You held back some of my money = My Withholding, that you have to pass on, along with the Employer's share of taxes.

"This reduces net income when it is a pass through entity. Reporting isn't accurate since it misses the 2018 payments for 2017."

If you do Payroll properly, no, that is not stated correctly. The Banking that happens in 2018 is because of Payroll dated in 2017. Don't confuse Cash Flow (when the payment happens) with Expense. They are not the same concept.

"Create an Asset account for Prepaid Taxes."

No one in this scenario has Prepaid taxes; not you, personally, and not your entity.

"Payments through the year get logged into this account."

No.

"At the end of the year create a journal entry that pays the SUTA, FUTA, FICA expense accounts."

No. Payroll is based on Pay Date = the date you Got Paid for work performed.

If you have QB for Mac, and want to enter payroll as Manual Accounting, here are some ideas:

QB payroll I want to do it myself

Recording payroll transactions manually - QuickBooks Learn & Support

"The balance sheet will report a negative asset balance, so shouldn't a liability account be used instead?"

Not for Estimates; only for Payroll and only because you are not sending on the employer tax and the employee withholding right away.

"Create a liability account for Taxes Payable and a journal entry for the end of the year for total taxes owed."

Payroll is Every Pay Date. There is no "end of year" anything about it. The IRS has Due Dates which you have to follow.

"Payments apply towards the liability through the year and the next."

You abide to the IRS guidance given to this employer for their Due Date requirement. Example: FUTA (940) is accrued every pay date. When it reaches $500, it has to be sent in, or at least for year end, and 2017 year end was due to be paid by Jan 31. But FICA (941/944) has a different cycle and a different "must be paid by" and "under $2,500 can carry over month end, but not quarter end" as examples.

"Final journal entry tax payment at the end of the year that pays the SUTA, FUTA, FICA expense accounts from the liability account."

No; that is Banking. No JE needed. And the Expense accounts are already holding their values, from every pay date.

"Create an equity account for Owner's Estimated Taxes."

No; never track personal details in the Corporate accounting. This is Just a distribution.

"Payments reduce the equity through the year. Create journal entries at the end of the year that pays the SUTA, FUTA, FICA expense accounts."

No; the Employee never pays SUTA or FUTA and that is not Employer Expense. This is cash flow, and you should already have combined Employer and Employee FICA, from every pay date.

And you don't use JE, when you are Making the payment. That is Banking.

I really encourage you to meet with your own CPA or payroll professional. This is not something to teach yourself.





Not applicable

There are states that allow the Pass Through Entity to ta...

There are states that allow the Pass Through Entity to take the expense deduction (e.g. CT).  These would be recorded as an expense on the company P&L.
Not applicable

Re: "What is the proper way to record an estimated tax paymen...

California S-Sorps DO have required estimated tax payments to make.

 

https://www.ftb.ca.gov/businesses/Structures/S-Corporations.shtml

Established Community Backer ***

Re: "What is the proper way to record an estimated tax paymen...

Franchise Tax is not the same as Estimated Income taxes.

Not applicable

Re: "What is the proper way to record an estimated tax paymen...

In California an S-Corp pays Estimated Taxes to the Franchise Tax Board using for 100-ES

 

https://www.ftb.ca.gov/forms/2018/18_100es.pdf

 

The estimated tax is payable in four installments as follows:

  • 30 percent for the first required installment due April 15.
  • 40 percent for the second required installment due June 15.
  • No estimated tax payment is required for the third installment due September 15.
  • 30 percent for the fourth required installment due December 15.
Community Contributor *

Re: How do you record S-corporation estimated tax payments?

I own 100% of an S-Corp

Example:

P&L shows a net profit of $10,000.00 for the 2nd qtr

My estimate for Federal 1040ES is $2,000.00

My estimate for State is $700.00

Need advice on the setup of General Ledger and what the debits and credits would be to record the entries for posting and paying the liability.

Established Community Backer ***

Re: How do you record S-corporation estimated tax payments?

An s-corp is a pass though entity, and it does not pay taxes.

 

Estimated tax is a personal filing with the IRS, you pay it from your bank.

 

As a working shareholder in an s-corp, owner or not, you are required to be on payroll.  And in an s-corp there are no equity accounts that act the same as those in a sole proprietor or partnership.  There is no drawing account where you the owner can just take funds from the corp.

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