My accountant said to categorize my annual business income tax payments as a distribution but how - do I create a new category called distributions? Expense or liability?
This is the first year my business has owed taxes on our annual return so I'm only familiar with categorizing our payroll taxes. I have 2 payments I need to assign a category to, one from the IRS and one from my State Income Tax. Is it as simple as adding a new category called Distributions? Is that the correct way to classify it? I'm not sure if it should be an expense or a liability account? Or something else?
I think there's some confusion about the terminology here. If your accountant is telling you to classify your income tax payments as distributions, that would imply that you paid your personal income tax out of the business, yes? And you're an S-corp? Are you the only shareholder? If that's the case, then you can certainly classify those payments as distributions and you would set up an equity account called 2021-Distributions (if paid in 2021) and you can assign both the federal and state payments to that account.