Accrued taxes

pdxmusicman

I'm not sure how to record accrued taxes. I have a checking account and a savings account. When I receive a check, I deposit it into the checking account, calculate the taxes owed and then transfer the tax amount into the savings account. I created a Taxes Due liability account in Wave. When I transfer the money from checking to savings, the category is listed as a transfer. I was hoping I could use the Taxes Due as the category, but that messes up the savings account balance. Am I supposed to be creating a manual journal entry in the Taxes Due liability account and not link it to the savings account? Confused...

AlexL

Hi @pdxmusicman , I'm a little bit confused as to what you're trying to accomplish by transferring taxes over. Can you give me an idea of why you're handling it this way? We do have Sales Tax accounts set up that you can apply to your transactions to count this for you, are you familiar with them?

pdxmusicman

I'm an independent contractor, so I need to withhold income taxes out of every check I receive and pay it at the end of the year. I deposit the check into the checking account, calculate the taxes owed, and transfer the taxes into a savings account. When I move the money, Wave lists the transaction as a transfer from checking to savings. At that point, the tax savings is an asset. How do I also get it recorded as a Taxes Due liability?

Mikeg

@pdxmusicman,
As an independent contractor I'm assuming that you are filing Schedule C. Income taxes are not a deductible expense for the business. Currently you are saving for the inevitable tax that is coming due (smart move). Since the business itself does not pay tax there is nothing to accrue, the amounts you pay on your 1040 are considered an owner draw when you transfer the money to pay the taxes. FYI: Accruals are done through journal entries. They typically debit an expense and credit a liability. I would not suggest accruing taxes.