CA 7% Franchise Tax Withholding - How to handle invoice payments?
desertrat75
Member Posts: 4
Independent Contractors, working in CA, that live out of state, are now subject to a 7% tax. This is being withheld by the hiring company upon payment of invoice.
How can I incorporate this into my ledger, as the invoice amount no longer matches the payment amount. I want to be able to track this tax as well.
in Using Wave
0
Comments
desertrat75,
The way Wave would normally post an invoice is Debit Accounts Receivable and Credit Sales. When the payment comes in it would be Debit Cash, Credit Accounts Receivable. If you are having taxes withheld at the source then the shortfall between what was paid and the receivable balance needs to be debited to a short term asset as prepaid taxes or expensed. You would then file a CA return and claim your prepaid taxes. Hope that helps.
Mike G, CPA
www.mgfinancial.net
While I greatly appreciate your explanation and suggestion to record the tax as a short term asset, I still cant figure out how to record the payment. Since I cant (or can I?) record a credit on my invoice, or "split" a receivable, I cant seem to reconcile that transaction.
Are you able to split the receipt? I'm not super familiar with the invoicing side.
Mike G
No, unfortunately, you can only record the payment in full. I was hoping there's a way to handle this on an invoice. For now, I've put the tax in as a negative income item so I can move on with my life, but I can't track this as a short term asset now. It's a strange new tax law.
That's CA for you. I'd be happy to help you figure out a way to journalize your transaction. You can rename the negative income (really an expense) as CA Withholding so you can track.
Mike G, CPA