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Level 1

Proper account for federal tax payments?

My business is an LLC and I file taxes as a Sole Proprietor. What type of account should I use to record my estimated federal income tax payments? 

Right now i have it under an expense account, but I don't like that because it is not a deductible expense and it skews my P&L reports. 

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Best answer 12-17-2018

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Level 15

Proper account for federal tax payments?

when you pay estimated quarterly income tax payments from the business that is an equity draw, it is not a business expense

 

For a company taxed as a sole proprietor (schedule C) or partnership (form 1065), I recommend you have the following for owner/partner equity accounts  (one set for each partner if a partnership)

[name] Equity (do not post to this account it is a summing account)
>> Equity
>> Equity Drawing - you record value you take from the business here
>> Equity Investment - record value you put into the business here

 

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3 Comments
Highlighted
Level 15

Proper account for federal tax payments?

when you pay estimated quarterly income tax payments from the business that is an equity draw, it is not a business expense

 

For a company taxed as a sole proprietor (schedule C) or partnership (form 1065), I recommend you have the following for owner/partner equity accounts  (one set for each partner if a partnership)

[name] Equity (do not post to this account it is a summing account)
>> Equity
>> Equity Drawing - you record value you take from the business here
>> Equity Investment - record value you put into the business here

 

View solution in original post

Highlighted
Level 1

Proper account for federal tax payments?

Thanks! 

I already have had my equity accounts setup that way. I use my members draw account to pay myself. 

Highlighted
Level 1

Proper account for federal tax payments?

If I wanted to set aside 40% for estimated taxes could I have 4 equity accounts?..

 

Equity

Equity Draw (the money left after 40% has been put into the tax holding account that is available for personal income payments)

Equity tax holding 

Equity investment 

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