Record income tax payment
SandyL
Member Posts: 35 ✭✭
If I owe $10,000 in federal/provincial tax (in Canada this is a non-operating expense) how do I record the payment? There doesn't seem to be a way to set up an non-operations expense category.
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Hey @SandyL , you can select Sales Tax Payment to Government under the categorization option in the expense transaction. From there, you can select which Sales Tax account it's associated with.
Thanks Alex, but I don't think I provided enough information in my question. I'm asking about income tax which, of course, is different than sales tax. Is there a standard way to account for these quarterly payments? These taxes can't be expensed as operational expenses, and payment can't be drawn from 'income' accounts as that would reduce my taxable income which the government doesn't go for (sadly).
Further to our discussion, in Canada we file a Schedule 100 with the CRA which is a company's Profit and Loss (Income Statement).
In that form, we use GIFI 9990 Current Income Taxes and it's listed under Extraordinary Items and Income Taxes. So this tax should show on a P&L but not as an Operating Expense.
Is there anyway to do this?
Hey there @SandyL
In order for you to create journal entries relating to income tax, you will need to create a liability (and/or expense) account for corporate tax. Having done this, you may proceed to add journal entries/categorizing transactions for income tax payments. With regards to how to rePlease let me know if you have more questions about this.
I see you commented before on one of our other threads with your steps on how to do this! Thanks so much for that.
https://community.waveapps.com/discussion/comment/26984#Comment_26984
This will require you create custom accounts in your chart of accounts and since we in Wave are not accountants, but support technicians, you may want to reach out to one too, or check out our accounting pro community! or the accounting tech support community where a lot of accountants answer peoples questions, like this one:
https://community.waveapps.com/discussion/comment/26052#Comment_26052
Thanks for your response, Barsin. I do need to understand how to set up an after-tax expense line, and it seems that the only way to do this is to set up a Liability account and move money through it. I think I'll take your suggestion and try the pro community to make sure
Can I hop in here and confirm that Wave does not natively allow you to record 1040ES payments? A workaround is required? I was expecting it to not only record them, but calculate quarterly payments based on my income and remind me of when they are due.
Is this something being considered? I'm a new user and I'm taking Wave for a test drive.
Thanks,
David
Hi @David_M_! Thanks for reaching out here. Wave does not have a built in function that would allow you to do this and I'm afraid it is not on the immediate roadmap. You would have to enter the payments into the Transactions page and then categorize them to the appropriate category. Are you able to provide some further context as to what you/your business does? It is helpful for our team to have any extra insight into why this feature would be useful and what type of users would benefit from it! Thanks again
Hi Emma,
It seems that we're all asking for the same function (not a nice-to-have feature), an accounting function that allows us to show a federal income tax payment as a non-operational expense. This is a basic requirement and without it, the P&L is incomplete and ongoing accounting of installment payments can't be done using standard accounting practices. It would be great if someone from the Wave team could take a more robust look at this issue.
Cheers,
Sandy
Hey @SandyL
Thanks for your contribution to our community forum. As Emma has previously mentioned this feature is not at the moment being considered by our developers, but that's not to say that it will never be. I apologize for being the bearer of bad news and appreciate your +1 on this feature idea. Others are welcome to +1 this as well!
+1 . This bothers me for 6 years now. I cannot close my books properly when my tax expenses are considered business expenses and appearing on my profit and losses report.
@SchlauFuchs - I feel your pain! For some reason, the folks at the Wave don't seem to understand that this is a fundamental accounting practice.
I echo the frustration here. We need a way to capture 1040ES payments that are in line with fundamental accounting practices. I'd like to recommend this platform to others in my business network, but hesitate as this would be exceptionally frustrating for their bookkeepers.
I am really surprised that Wave does not allow you to account for income taxes as a non-operating expense. Surprised and disappointed. This seems to really limit the usefulness of the reporting features.
+1 for a non-operating income tax expense category!
+1 thank you!
+1 // I agree with all the above
@Barsin +1 Can one of the administrators reach out to the expert accountants of the Wave App so someone can explain that non-operating income tax accounts are something super basic when it comes to accounting. Wave is an accounting app. How is it possible that this is not possible currently in the app?
Add Other Expenses for Income Tax Payment please.
Wow ! I am COMPLETELY blown away by the fact that this so called accounting software does not allow for income tax payments to be accounted for correctly !!!! I just set this up yesterday. Today I was finishing up getting everything configured correctly when I realized the problem with the tax issue. I did a quick Google search and found MANY people with the same problem .
Can someone from Wave please reply to me and explain how you are able to call this "Accounting Software" ?? (and to do it with a straight face??) Does anyone at Wave have any accounting knowledge ? ANY at all ??
Ray
Ok folks - take a deep breath here.
Income tax IS an Expense. You can argue what kind and while it is a different kind than operating it is an Expense.
Secondly, it can only be calculated accurately, once per period. Specifically at the end of the period after ALL the accounting treatments are applied. Thenn it reduces your Net Income for that period.
So, operationally, you can estimate tax amounts owed for each month or quarter and set them aside as a pre-payment. Some corporations are told by the tax authorities exactly how much to send in each month to the Receiver General. In either case these amounts are just estimates; the actual tax bill will be calculated at the end of the period after all the accounting treatments are applied. Your monthly or quarterly offerings will be deducted from the tax bill and you will either be refunded or asked to pay the difference.
Create an Expense account called Income Tax Expense.
Create another Asset account called Income Tax Installments.
If you are making periodic income tax payments to the gov't catagorise those payments to the Installment Asset account. When your tax bill comes due you pay it from this account.
Dr Tax Expense
Cr Tax Installments
So, during the year you will not see the tax installments on your P&L. They will show up on your Balance Sheet as an Asset.
At yearend you make one transaction and shift your installment assets to a tax expense. Then it shows up on your Final P&L.
@Kimpton I think you misunderstood the issue. All the folks on this post understand that Income Tax is an expense and that is paid monthly or quarterly. Your instructions have been bantered about already, and although using the Balance Sheet seems to be the only work-around available, it's not the right place to capture/track the Tax expense.
The P&L is cumulative in the Wave (as are their other reports) and it does not allow a non-operational expense entry (not throughout the year or at Year End, as you have suggested).
So, the request for the Wave platform to enable a non-operational expense entry, that is listed after taxable net income in the P&L, is a reasonable request. These non-operational expenses would be withdrawn from an Equity (retained earnings) account.
I'm so sorry, Sandy, to say this but your understanding and representation of the financial statements is incorrect.
The Chart of Accounts and double-entry accounting are quite rigid in their rules. They are at times contrary to what seems logical but they are the rules.
The issues presented in this thread are easily resolved within the standard accounting rule set (known as GAAP). Wave has Wave Advisors to help with accounting issues and I'm sure there are any number of accountants in your community that can advise you.
@Kimpton Please show us, then, how/where to:
"Create an Expense account called Income Tax Expense." -- we need one that is non-operational, exactly where is this being created?
"At yearend you make one transaction and shift your installment assets to a tax expense. Then it shows up on your Final P&L." -- Where is this 'tax expense' you're shifting to? Where/how does it show up on the P&L as a non-operational expense?
The P&L, right now, is only set up to account for operational expenses, unless you've discovered something that I haven't - in which case, I'd love to know
Sandy, careful what you ask for
You are asking about some pretty hi-level and detailed accounting presentations.
Let's do 2 things before we get into it.
1. Read and understand this snippet from an accounting site:
An income statement tracks the income and expenses of a company over a certain period to provide an image of its profitability. Income statements typically categorize expenses into six groups: cost of goods sold; selling, general, and administrative costs; depreciation and amortization; other operating expenses; interest expenses; and income taxes. All these expenses can be considered operating expenses, but when determining operating income using an income statement, interest expenses and income taxes are excluded.
2. Pls tell me where, when and how you get your income tax expense.
@Kimpton I appreciate the time you're taking to provide information, the latest being basic and not new to myself, nor others on this post. I'm a corporation in Canada, so perhaps we're working at cross-purposes? In Canada, taxes are not an operational expense. This is how a P&L might look, we're trying to have the red entry in the Wave P&L but currently, you can only have entries above the Taxable Income line. This seems to be a gap in their software.
Good to know, at least, we're in Canada. I'm a Canadian accountant. In Canada, taxes are not a deductible expense to determine Net Income (Loss) for Income Tax Purposes.
So your Income Statement presentation is typical. And I would guess prepared by an tax accountant. They, and I, do not use free accounting software to prepare our client's Financial Statements. Wave is free to you to use so it's not too fancy. You get what you pay for.
Your example Income Statement is typical but certainly not the only form of presentation used for corporate statements. Some are considerably more involved.
A very basic Income Statement can be accurately and correctly presented thus:
Revenue xxx
Expense xxx
Net Income xxx
As I said previously, an income tax expense is a calculated item and can only be calculated after all the transaction data for the period has been correctly posted. Then, and only then, it is an expense.
A solution, if you want, is to download a csv file of the income statement from Wave and prepare the presentation any way you wish.
All the accounting platforms that I am familiar with, and use, present the Income Statement in a similar or more complex form than you have shown. But they are not free.
Thus endeth today's lesson.
Again, I appreciate your time, but you haven't yet told me/us anything we don't already know, so the lesson has not yet been taught
This post is about the software platform, not basic accounting knowledge.
Cheers!
Does this apply for sole proprietors as well, or just LLCs? I know from another post that tax instalments are 'debit - taxes payable' from liability account and end of year taxes as 'debit - tax expense' from an expense account.... However wasn't sure if this was only for LLC's, as for sole props the estimated payments are owner's draw/equity.
Zoe,
Typically, yes this treatment is for corporations.
I'm a Canadian accountant so my understanding of US tax law is functionally non-existent. In Canada the net income from a sole-prop business is taxed in the hands of the individual proprietor.
Some clients wish to track their income tax installments within their Wave platform because their sole-prop is their only source of income. So you can post your tax instalments as you described (although instalments paid are an asset and posting them as a negative liability achieves the same result) for tracking purposes and to have these amounts show up on your Wave financial statements, but again, sole-prop income taxes are calculated using net taxable income to the individual taxpayer.
Hope this helps.
K