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Level 1

What account should our income tax refund go under?

What account should federal income tax refund go under when depositing? 

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Best answer 10-15-2018

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Anonymous
Not applicable

What account should our income tax refund go under?

I will assume this tax refund related to income tax from last year - and that last years accounts are already closed.

If a tax refund was expected, then likely there was a 'tax receivable' item already setup somewhere.  It could be in Accounts receivable, or it could be a negative Account payable, or it may be in its own GL account.  If you can find it, then code the refund to that same account.

If the refund was unexpected, most businesses do not reopen and restate the prior years tax expense - instead the refund just gets counted as part of this years income tax expense, as a credit.

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3 Comments
Highlighted
Anonymous
Not applicable

What account should our income tax refund go under?

I will assume this tax refund related to income tax from last year - and that last years accounts are already closed.

If a tax refund was expected, then likely there was a 'tax receivable' item already setup somewhere.  It could be in Accounts receivable, or it could be a negative Account payable, or it may be in its own GL account.  If you can find it, then code the refund to that same account.

If the refund was unexpected, most businesses do not reopen and restate the prior years tax expense - instead the refund just gets counted as part of this years income tax expense, as a credit.

View solution in original post

Highlighted
Level 15

What account should our income tax refund go under?

What matters is the Tax Entity. Only a C Corporation pays its own income taxes. Income Tax refunds for Sole Proprietorship = Personal, not business. It wasn't business going out and it isn't business coming it; it is Owner Draw and Owner Equity deposit. For an LLC, it is similar to a Sole Proprietorship (if treated as a Disregarded entity) or it is the same as a Corporation (because it elected to be treated as such). For S Corp, that is like a partnership LLC = pass through entity, so now, it matters Whose income tax refund is being "loaned" to the business entity.
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Level 2

What account should our income tax refund go under?


@qbteachmt wrote:
What matters is the Tax Entity. Only a C Corporation pays its own income taxes. Income Tax refunds for Sole Proprietorship = Personal, not business. It wasn't business going out and it isn't business coming it; it is Owner Draw and Owner Equity deposit. For an LLC, it is similar to a Sole Proprietorship (if treated as a Disregarded entity) or it is the same as a Corporation (because it elected to be treated as such). For S Corp, that is like a partnership LLC = pass through entity, so now, it matters Whose income tax refund is being "loaned" to the business entity.

I'd just like to clarify that the advice above is related to FEDERAL taxes, and possibly some states. Here in California, LLC's (taxed as SP or S Corp) do have business taxes. The other reply was the information I was looking for, but read this and wanted to chime in as it may cause confusion to others..

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