Federal and sales tax categorized as business deductions

Hello there, @Nik14.

I'll share information about categorizing transactions in QuickBooks Self-Employed (QBSE).

Federal and sales taxes are deductible. Thus, this will fall into the taxes and licenses category since it is related to your self-employed work. Moreover, it will automatically categorize these transactions if your bank account is connected to online banking.

Furthermore, those non-deductible payments won't appear on your tax reports.

To learn more about the Schedule C categories when categorizing your transactions, feel free to read this article: Schedule C and expense categories in QuickBooks Solopreneur and QuickBooks Self-Employed.

Also, you can run financial reports in your QBSE to keep track of your business by checking out this resource: Export transactions and get reports in QuickBooks Self-Employed.

Keep me posted if you still have questions or concerns about your transactions in QBSE. I'll be around for you. Take care always.

@Carneil_C  What?

Thank you so much for your reply and clarification! I see now that estimated tax payments don't appear in the report. They are in their own category. So federal self-employed tax is deductible and federal income tax is not. Is that correct? I think that's where my confusion is coming from. 
Another question is how QBSE calculates the estimated tax. If federal tax payments are marked as business spending the number of estimated quarterly tax becomes significantly smaller. Can I trust how QB calculates it?

Hello there, @Nik14.

Thank you for your follow-up question! I can help clarify the distinction between federal self-employment tax and federal income tax and explain how QuickBooks Self-Employed (QBSE) calculates estimated taxes.

Federal Self-Employment Tax:

• This tax is deductible as a business expense. It covers Social Security and Medicare taxes for self-employed individuals. QuickBooks Self-Employed accounts for this when calculating your net income.

Federal Income Tax:

• This tax is not deductible as a business expense. Federal income tax payments should not be categorized under business spending in QBSE. Instead, they are tracked separately.

QuickBooks Self-Employed uses the following steps to estimate your quarterly taxes:

• Calculate Your Net Profit:
  QBSE calculates your net profit by subtracting your expenses from your income.
• Apply Tax Rates:
  QBSE applies the appropriate federal self-employment tax rate to your net profit and your estimated federal income tax rates based on your tax bracket.
• Subtract Deductions:
  QBSE accounts for deductible expenses and the self-employment tax adjustment (you can deduct half of your self-employment tax when you file your annual taxes).

You can generally trust QuickBooks Self-Employed's calculations, provided your transactions are correctly categorized. Here are some tips to ensure accuracy:

• Correct Categorization: Ensure all expenses and income are correctly categorized as business or personal. Misclassified federal income tax payments could artificially reduce your estimated taxes.
• Regular Review: Periodically review your transactions to ensure everything is categorized correctly.
• Consult a Tax Professional: While QBSE is a powerful tool, it's always a good idea to consult a tax professional to ensure you meet all your tax obligations and optimize your deductions.

Please refer to this article to learn more about how QuickBooks calculates your income tax: Automatically estimate your income tax in QuickBooks Self-Employed.

I hope this clears up the confusion! Please let me know if you have any questions or need assistance. We're here to help you make the most of QuickBooks Self-Employed.

Thank you so much! Your answer is SO helpful. 
So when I pay estimated tax that's a combination of SE tax and federal tax and that's in one transaction. Is QBSE still able to understand what in that payment was deductable 50% SE tax and what was non deductable federal? To come up with the next quarterly estimated amount? 
I understand this is an estimated payment and at the time of filing it will be calculated precisely. How I want to understand better how QB calculates. Thank you so much.

Let me share some insights on how QuickBooks Self-Employed (QBSE) is calculated, Nik14.

We will determine your self-employment taxes by analyzing your business income, expenditures, permissible expenses, and tax profile. Additionally, it is influenced by: 

• How much of your income is above your Allowance
• Amount of income that falls within each tax band

This indicates that you don't need to be simultaneously self-employed and employed for income tax calculation.

For further information on what QBSE does not calculate, other types of taxes, such as:

• State income taxes (learn more about state self-employment taxes)
• Sales tax (learn more about sales tax in QuickBooks Self-Employed)
• AGI phase-outs and alternative minimum tax (AMT)
• Children's interest
• Medical expenses, stock payouts, and 401(K) draws
• One-time lump-sum distributions
• Special-cases standard deductions (if you're blind, over 65, etc.)
• Tax credits

If you require the calculation of additional tax types, TurboTax can assist you in this process. For more complex tax situations, it is advisable to consult with a professional accountant.

In addition, learn how to run reports to get your federal estimated quarterly tax payment and annual tax info: Get quarterly and annual tax info from QuickBooks Self-Employed.

If you have any other concerns about federal and sales tax please let me know. I'm always here to help.