QuickBooks Accounting Software - Estimated Quarterly Taxes

When you pay your estimated quarterly taxes for your business, this cannot be an expense. If you marked it as an expense, then when you ran your "profit and loss" statements it would seem like you were not making a lot of income - and therefore your tax numbers would seem lower! That is, say you made a $10,000 profit in quarter 1 of a year. Now say you mark as an "expense" that you paid $2,000 to the IRS. It would make it seem like you had only $8,000 in profit, which would be wrong.

So to handle this, what you do is you mark the $2,000 you pay to the IRS as going to an "asset". In essence it's like you have a bank account called the IRS that you are depositing money into, every quarter. At the end of the year, you balance out on 12/31 with an "expense" that takes into account all those estimated quarterly payments, and the asset zeroes out.

You can't actually DO that at the end of the year, though, because you usually only know in April of the NEXT year what that final balance is going to be. So until April you just have an "asset" of "prepaid taxes" that holds the various taxes you have paid in towards that April reckoning.

Then in April when you finish your taxes, you create a journal entry. Date that journal entry for 12/31 of the previous year. You credit your Prepaid Tax asset, and then you debit an expense category called Federal Taxes. You do this for all the PREPAID payments you made (including the one in January). However, the "final" check you write in April - assuming of course you owe some money - gets tagged directly to the expense category (not the asset). That is because that is now going off to finalize the payment and you are all set.

If you're a personal type of business (sole proprietorship etc) remember that taxes are a PERSONAL payment YOU are making and NOT a business payment.

Note that you CAN (usually, check with your tax person) deduct state, local, excise, and other taxes from your federal income taxes. So it's wise to keep TWO separate expense accounts - one for federal taxes and one for all other taxes. That way you keep those separate.

For running your Profit and Loss statement, the times you want to filter out those taxes from old reports, first save a copy of the standard Profit & Loss and call it Profit & Loss - NO TAXES. Now click "Modify Report". Go into Filter, then for Account say Multiple Accounts. Click on the first account you want and just hold and drag your mouse down. This will select everything. Now UNselect the tax entries.

I want to note here that I am not an accountant, so if someone is doing this for tax reasons, they should always talk with their accountant

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