Record income tax payment

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Comments

  • zoelarkinzoelarkin Member Posts: 8

    ok I have read it about 200 times and I think I have maxed out my level of understanding but I'm just going to do the best I can on my tax return I hope I don't massively botch it. I think what you've said applies to US tax law as well, with it being taxed in the hands of the prop as an individual. Important thing I guess to take away is that tax instalments are an asset

  • KimptonKimpton Member Posts: 78 ✭✭

    I think you've got it Zoe!
    As long as you don't include the installments as an expense for your business.
    Your basic business equation is 'revenues - expenses = profits' (or net income).
    Your tax form will ask what your business profits are. And then all that other personal stuff.
    Somewhere near the end of the tax form, after your tax is calculated it will ask if you have made installments. Now you enter your tax installment amount.
    I think you're on your way now. Good luck!

  • mizzlaramizzlara Member Posts: 1

    @Kimpton said:
    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

    Thanks so much for your helpful input - so as a Canadian sole-prop it's basically a personal preference if I want to track my income tax payment? I actually came here to try to figure out how to track my HST payment, which I was able to piece together from what was posted above. But for income tax it doesn't matter if I track it in terms of my P&L?

    edited April 21, 2021
  • Gabriel_KrozkinGabriel_Krozkin Member Posts: 16 ✭✭

    @mizzlara said:

    @Kimpton said:
    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

    Thanks so much for your helpful input - so as a Canadian sole-prop it's basically a personal preference if I want to track my income tax payment? I actually came here to try to figure out how to track my HST payment, which I was able to piece together from what was posted above. But for income tax it doesn't matter if I track it in terms of my P&L?

    Hi @mizzlara Yes, as a Canandian Sole-prop (tha you file your business taxes in your personal income tax Schedule T2125) it does not show in your T2125 P&L at ALL your income tax instalment/ payment in your Tax return (just when you file your taxes is shown the amount paid as instalment, but it should not show in your P&L in the T2125 as expense).
    You can track it in Wave (if you want) for the "income tax expense" account, the amount of income tax paid thought.

  • blankrealityblankreality Member Posts: 4
    Well unfortunately I’m now more confused than ever.

    Excuse my ignorance but isn’t tracking income and expenses to help calculate 1040ES payments (for US users) one of the *main* reasons small businesses use platforms like Wave? Accurately categorizing and reporting quarterly tax payments seems like basic functionality. This doesn’t seem like an unreasonable feature to request.
  • EBSLATEBSLAT Member Posts: 2

    I just started testing the software out and this is the first bump in the road. I understand that estimated tax payments are not to be categorized as an expense, but what are we to do with the transaction record of the said installment payments that were pulled in from the bank? Delete them? ***read some more support docs - I may have figured out what "creating accounts" mean now! ***

    I read all the posts in this thread and I am willing to study them some more, but I just wanted to add a +100 vote for a simple way for a layman like me to be able to easily categorize/record estimated income tax payments. Thanks.

    edited June 29, 2021
  • KimptonKimpton Member Posts: 78 ✭✭

    Ok EB, nomenclature matters.
    If you have estimates, that's great. That will help out with your business planning. But, there is NO PLACE for estimates in your accounting records.
    If, on the other hand, you are making periodic installments on your eventual tax bill, then that's something else. Once you understand that there is a difference between actual cash transactions and some theoretical estimates you can choose a few ways to go.

    You can (and probably should) create an account called "Income Tax Installments Paid". The question is, Where to put it?
    Since a tax installment is a prepaid expense you can put it in your Assets. Nothing wrong with that, it is quite correct. Just remember that you'll have to do a journal transaction at the end of the year to pay your tax bill.

    If you understand what a negative number means in an expense account, then you'll be fine categorizing these tax installment amounts as "Income Tax Expense". It's a shortcut to showing your current balance with the taxman and it's fine if you're a sole-prop. If you need to read your Income Statement more often throughout the year the negative expense will throw off your Net Income.

    So you could also create an account called "Income Taxes Payable" in your Liability section and run your tax installments through there. This will also appear as a negative liability which again, you'll have to clear with a journal entry once you pay your tax bill.

    This is actually a pretty simple and straightforward problem to solve EB, especially if you follow the first suggested course. Use the right terms to describe what you're doing so you can take the right steps at the right time.

    Hope this helps,
    K

  • SandyLSandyL Member Posts: 33 ✭✭

    @Kimpton
    At this point, the value of this post will come from the Wave team and some updates to their software or at least an explanation as to why a technical solution can't be achieved. As people hop on to the post and vote up, this will become more likely and that's why they're doing so.

    I'm not sure what your underlying intent is in responding to comments on this post, but I've felt a tone of condescending pontification in some of your responses. I am personally not seeking commentary in the manner that you're providing it and the writer of the latest comment didn't seem to be asking for this type of contribution either. I'm guessing that your suggestion that s/he didn't know the difference between an estimate and a payment was not helpful and perhaps even offensive. A simple step by step instruction might have been more useful.

    Given where this post is at, I wonder if there's a different way/place for you to make a contribution.

    Kind regards

  • EBSLATEBSLAT Member Posts: 2

    @Kimpton @SandyL
    Much delayed reply, but thank you both for your insights and support. As a complete newbie, I do appreciate all and every information that I can learn from. I do also agree that Wave should directly address this issue, as we see in this post, many users do not have the accounting expertise of others in the community. Regards.

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