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?

It depends on how the business is taxed, if it is a sole proprietor or a partnership, then income taxes paid or refunded are a personal finance event and do not belong in the business accounting.

Regardless a tax payment is not a distribution, ever.

If the business is taxed as a c- or s-corp, then you should have a tax paid expense account set up in the chart of accounts, use that

@SherylH24 

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.