How to record business income tax paid, in QuickBooks?
Federal income taxes are indeed expenses, they're just not DEDUCTIBLE expenses on your 1120. Federal Income Tax Expense is usually a subcategory under Taxes. This is one of the items that will be a book-to-tax difference on Schedule M-1. I am presuming you are talking about a C corporation, as an S corporation is not likely to be paying federal taxes itself, but would pass the liability through to the members. If you're paying your personal 1040 taxes out of an S-corporation bank account, that's an owner's draw just like paying any of your personal non-business expenses. I would encourage you to get a tax professional to prepare your corporate tax returns. It's not quite as simple as TurboTax Business makes it out to be. ;) Mariette IRS Circular 230 Notice: Please note that any tax advice contained in this communication is not intended to be used, and cannot be used, by anyone to avoid penalties that may be imposed under federal tax law.
I assume the OP is the US and that he is, like most people, a cash-basis tax payer and not an accrual basis tax payer. Suppose the value of the rental of the unit the OP is occupying  was reported  as income on the OP's 2010 and 2011 W-2 forms but the corresponding income  tax was not withheld.  If the OP correctly transcribed these income numbers onto his tax returns, correctly computed the tax on the income reported on his 2010 and 2011 1040 forms, and paid the amount due in timely fashion,  then there is no tax or penalty due for 2010 and 2011. Nor is the company entitled to withhold tax on this income for 2010 and 2011 at this time; the tax on that income has already been paid by the OP directly to the IRS and the company has nothing to do with the matter anymore. Suppose the value of the rental of the unit the OP is occupying  was NOT reported as income on the OP's 2010 and 2011 W-2 forms.  If the OP correctly transcribed these income numbers onto his tax returns, correctly computed the tax on the income reported on his 2010 and 2011 1040 forms, and paid the amount due in timely fashion,  then there is no tax or penalty due for 2010 and 2011. Should the OP have declared the value of the rental of the unit as additional income from his employer that was not reported on the W-2 form, and paid taxes  on that money? Possibly, but it would be reasonable to argue that the OP did nothing wrong other than not checking his W-2 form carefully: he simply assumed the income numbers included the value of the rental and copied whatever the company-issued W-2 form said onto his 1040 form. At least as  of now, there is no reason for the IRS to question his 2010 and 2011 returns because the numbers reported to the IRS on Copy A of the W-2 forms match the numbers reported by the OP on his tax returns.    My guess is that the company discovered that it had not actually declared the value of the rental payments on the OP's W-2 forms for 2010 and 2011 and now wants to include this amount as income on subsequent W-2 forms. Now, reporting a lump-sum benefit of $38K (but no actual cash)  would have caused a huge amount of income tax to need to be withheld, and the OP's next couple of paychecks might well have had zero take-home pay as all the money was going towards this tax withholding. Instead, the company is saying that it will report the $38K as income in 78 equal installments (weekly paychecks over 18 months?)  and withhold $150 as the tax due on each installment. If it does not already do so, it will likely also include the value of the current rent as a benefit and withhold tax on that too. So the OP's take-home pay will reduce by $150 (at least) and maybe more if the current rental payments also start appearing on the paychecks and tax is withheld from them too. I will not express an opinion on the legality of the company withholding an additional $150 as tax from the OP's paycheck, but will suggest that the solution proposed by the company (have the money appear as taxable benefits over a 78-week period, have tax withheld, and declare the income on your  2012, 2013 and 2014 returns) is far more beneficial to the OP than the company declaring to the IRS that it made a  mistake on the 2010 and 2011 W-2's issued to the OP, and that the actual income paid was higher. Not only will the OP have to file amended returns for 2010 and 2011 but the company will need to amend its tax returns too. In summary, the OP needs to know that He will have to pay taxes on the value of the waived rental payments   for 2010 and 2011. The company's mistake in not declaring this as income to the OP   for 2010 and 2011 does not absolve him of the responsibility   for paying the taxes What the company is proposing is a very reasonable solution to the   problem of recovering from the mistake. The alternative, as @mhoran_psprep points out, is to amend   your 2010 and 2011 federal and state tax returns to declare the   value of the rental during those years as additional income,   and pay taxes (and possibly penalties) on the additional   amount due. This takes the company completely out of the picture,   but does require a lot more work and a lot more cash now rather   than in the future. "For anyone that's curious, I had a number of chats with Quickbooks who recommended I import only the relevant business transactions from my personal account & personal credit card in order to lower the tax liability. This way money ""paid"" from the business account to myself rightly shows up as a transfer and not as income. This means when generating a tax report, it calculates the correct rate of tax to be paid based on income minus allowable expenses, regardless which account they came from." "If you receive a 1099-MISC from YouTube, that tells you what they stated to the IRS and leads into most tax preparation software guided interviews or wizards as a topic for you to enter.  Whether or not you have a 1099-MISC, this discussion from the IRS is pertinent to your question. You could probably elect to report the income as a royalty on your copyrighted work of art on Schedule E, but see this note: ""In most cases you report royalties in Part I of Schedule E (Form 1040). However, if you ... are in business as a self-employed writer, inventor, artist, etc., report your income and expenses on Schedule C or Schedule C-EZ (Form 1040)."" Whether reporting on Schedule E or C is more correct or better for your specific circumstances is beyond the advice you should take from strangers on the internet based on a general question - however, know that there are potentially several paths for you.   Note that this is revenue from a business, so if you paid for equipment or services that are 100% dedicated to your YouTubing (PC, webcam, upgraded broadband, video editing software, vehicle miles to a shoot, props, etc.) then these are a combination of depreciable capital investments and expenses you can report against the income, reducing the taxes you may owe.  If the equipment/services are used for business and personal use, there are further guidelines from the IRS as to estimating the split. These apply whether you report on Sch. E, Sch. C, or Sch C-EZ.    Quote: ""Self-Employment Income It is a common misconception that if a taxpayer does not receive a Form 1099-MISC or if the income is under $600 per payer, the income is not taxable. There is no minimum amount that a taxpayer may exclude from gross income. All income earned through the taxpayer’s business, as an independent contractor or from informal side jobs is self-employment income, which is fully taxable and must be reported on Form 1040. Use Form 1040, Schedule C, Profit or Loss from Business, or Form 1040, Schedule C-EZ, Net Profit from Business (Sole Proprietorship) to report income and expenses. Taxpayers will also need to prepare Form 1040 Schedule SE for self-employment taxes if the net profit exceeds $400 for a year. Do not report this income on Form 1040 Line 21 as Other Income. Independent contractors must report all income as taxable, even if it is less than $600. Even if the client does not issue a Form 1099-MISC, the income, whatever the amount, is still reportable by the taxpayer. Fees received for babysitting, housecleaning and lawn cutting are all examples of taxable income, even if each client paid less than $600 for the year. Someone who repairs computers in his or her spare time needs to report all monies earned as self-employment income even if no one person paid more than $600 for repairs.""" "Without divulging too many specifics.  Net income is 73k.  Total income is 136k.  Filed as an S-Corp.  Using Quickbooks to classify expenses etc.  I know its not much information but I don't know what to look out for, like ""whoa, net income is 73k, you gotta spend that!""  I have a CPA but isn't offering much in the terms of ""help"" and ""explanation"".  Thanks for your time!" Funds earned and spent before opening a dedicated business account should be classified according to their origination. For example, if your business received income, where did that money go?  If you took the money personally, it would be considered either a 'distribution' or a 'loan' to you.  It is up to you which of the two options you choose. On the flip side, if your business had an expense that you paid personally, that would be considered either a 'contribution of capital' or a 'loan' from you. If you choose to record these transactions as loans, you can offset them together, so you don't need two separate accounts, loan to you and loan from you. When the bank account was opened, the initial deposit came from where?  If it came from your personal funds, then it is either a 'contribution of capital' or a 'loan' from you. From the sound of your question, you deposited what remained after the preceding income/expenses.  This would, in effect, return the 'loan' account back to zero, if choosing that route. The above would also be how to record any expenses you may pay personally for the business (if any) in the future. Because these transactions were not through a dedicated business bank account, you can't record them in Quickbooks as checks and deposits.  Instead, you can use Journal Entries.  For any income received, you would debit your capital/loan account and credit your income account.  For any expenses, you would debit the appropriate expense account and credit your distribution/loan account. Also, if setting up a loan account, you should choose either Current Asset or Current Liability type.  The capital contribution and distribution account should be Equity type. Hope this helps! I wrote a small Excel-based bookkeeping system that handles three things: income, expenses, and tax (including VAT, which you Americans can rename GST).  Download it here. You need to fill out form 8606.  It's not taxable, but you still need to report it (do I need to get a W9 from our suppliers)? Will PayPal or Shopify send me a 1099k or something? Do not assume that you'll get paperwork from anyone.  Do assume that you have to generate your own paperwork.  Ideally you should print out some kind of record of each transaction.  Note that it can be hard to view older transactions in PayPal, so start now.  If you can't document something, write up a piece of paper showing the state of the world to the best of your knowledge.   Do assume that you need separate receipts for each expenditure.  The PayPal receipt might be enough (but print it in case the IRS wants to see it).  A receipt from the vendor would be better (again, print it if it is online now).   A CPA is not strictly necessary.  A CPA is certified (the C in CPA) to formally audit the books of a corporation.  In your case, any accountant would be legally sufficient.  You still may want to use a CPA, as the certification, while technically unnecessary, still demonstrates knowledge.  You may otherwise not be in a position to evaluate an accountant.  A compromise option is to go to a firm that includes a CPA and then let them assign you to someone else to process the actual taxes.   You are going to have to fill out some business tax forms.  In particular, I would expect a schedule C.  That's where you would show revenues and expenses.  You may well have to file other forms as well. "Since this is a cooperative I'm guessing your partners may want to be able to view the books so another key point you may want to consider is collaboration.  QuickBooks desktop has all of these same issues because it is meant to be used on a single desktop. We're in an age of mobile devices, and especially in a business like landscaping it would be nice if certain aspects of record keeping could be done at the point and time where they are incurred.  I'd argue you want a Software as a Service (SaaS) accounting package as opposed to ""accounting software"" which might come on a CD in the form of QuickBooks, Sage and others. Additionally, most of these will also have guides to help make sure you are properly entering your records. Most of these SaaS products also have customer success teams to help you along should you need assistance. Depending on the level of your subscription you may get more sophisticated handling of taxes, customized invoices or integrated payroll. Your goal is to keep accurate records so you can better run your business and maintain obligations like filing taxes. You're not keeping the records just to have them. Keep them in a place where they will work for you and provide the insights and functionality that will help your business grow and become successful. Accounting software will always win in this scenario over a spreadsheet. FULL DISCLAIMER: I work for Kashoo, a simple cloud accounting product designed for small businesses. But the points I mention above are true for Xero, QuickBooks Online and Wave as well as Kashoo. And if you really want expertise to go with the actual software consider service providers with a platform like: Indinero, Bench, easyrecordbooks or Liberty Accounting." "From the IRS perspective, there's no difference between ""your taxes"" and ""your sole proprietorship's taxes"", they're all just ""your taxes"". While I could see it being very useful and wise to track your business's activities separately, and use separate bank accounts and the like, this is just a convenience to help you in your personal accounting, and not something that needs to relate directly to how tax forms are completed or taxes are paid. When calculating your taxes, if you want to figure out how much ""you"" owe vs. how much ""your business"" owes, you'll have to do so yourself. One approach might be just to take the amount that your Schedule C puts as income on your return and multiply by your marginal tax rate. Another approach might be to have your tax software run the calculations as though you had no business income, and see what just ""your personal"" taxes would have been without the business. If you think of the business income as being ""first"" and should use up the lower brackets rather than your personal income, maybe do it the other way around and have your software run the calculations as though you had only the business income and no other personal/investment income, and see what the amount of taxes would be then. Once you've figured out a good allocation, the actual mechanics of paying some ""personal tax amount"" from your personal bank account and some ""business tax amount"" from your business bank account are up to you. I'd probably just transfer the money from my business account to my personal account and pay all the taxes from the personal account. Writing two separate checks, one from each account, that total to the correct amount, I'm sure would work just fine as well. You can probably make separate payments from each account electronically through Direct Pay or EFTPS as well. As long as all taxes are paid by the deadline, I don't think the IRS is too picky about the details of how many payments are made." I strongly recommend that you talk to an accountant right away because you could save some money by making a tax payment by January 15, 2014. You will receive Forms 1099-MISC from the various entities with whom you are doing business as a contractor detailing how much money they paid you. A copy will go to the IRS also. You file a Schedule C with your Form 1040 in which you detail how much you received on the 1099-MISC forms as well as any other income that your contracting business received (e.g. amounts less than $600 for which a 1099-MISc does not need to be issued, or tips, say, if you are a taxi-driver running your own cab), and you can deduct various expenses that you incurred in generating this income, including tools, books, (or gasoline!) etc that you bought for doing the job. You will need to file a Schedule SE that will compute how much you owe in Social Security and Medicare taxes on the net income on Schedule C. You will pay at twice the rate that employees pay because you get to pay not only the employee's share but also the employer's share. At least, you will not have to pay income tax on the employer's share. Your net income on Schedule C will transfer onto Form 1040 where you will compute how much income tax you owe, and then add on the Social Security tax etc to compute a final amount of tax to be paid. You will have to pay a penalty for not making tax payments every quarter during 2013, plus  interest on the tax paid late.  Send the IRS a check for the total. If you talk to an accountant right away, he/she will likely be able to come up with a rough estimate of what you might owe, and sending in that amount by January 15 will save some money. The accountant can also help you set up for the 2014 tax year during which you could make quarterly payments of estimated tax for 2014 and avoid the penalties and interest referred to above. I think it depends on who is being paid for your app.  Do you have a company the is being paid?  Or is it you personally? If you have a company then that income will disappear by offsetting it through expenses to get the software developed. If they are paying you personally then you can probably still get the income to disappear by file home-office expenses. I think either way you need to talk to an accountant. If you don't want to mess with it since the amount of income is small then I would think you can file it as additional income (maybe a 1099). Try the following apps/services: Receipt Bank (paid service, gathers paper receipts, scans them and processes the data), I've tested it, and it recognizing receipts very well, taking picture is very quick and easy, then you can upload the expenses into your accounting software by a click or automatically (e.g. FreeAgent), however the service it's a bit expensive. They've apps for Android and iPhone. Expentory (app and cloud-based service for capturing expense receipts on the move), There are too many nuances to the question asked to explore fully but here are a few points to keep in mind. If you are a cash-basis taxpayer (most individuals are), then you are not required to pay taxes on the money that has been billed but not received as yet.  If you operate on an accrual basis, then the income accrues to you the day you perform the service and not on the day you bill the client. You can make four equal payments of estimated tax on the due dates, and if these (together with any income tax withholding from wage-paying jobs) are at least 90% of your tax liability for that year, then you owe no penalties for underpayment of tax regardless of how your income varied over the year. If your income does vary considerably over the year (even for people who only have wages but who invest in mutual funds, the income can  vary quite a bit since mutual funds typically declare dividends and capital gains in December), then you can pay different amounts in each quarterly installment of estimated tax. This is called the annualization method (a part of Form 2210 that is best avoided unless you really need to use it).  Your annualized income for the payment due on June 15 is 2.4 = 12/5 times your taxable income through May 31. Thus, on Form 2210, you are allowed to assume that your average monthly taxable income  through May 31 will continue for the rest of the year. You then compute the tax due on that annualized income and you are supposed to have paid at least 45% of that amount by June 15. Similarly for September 15 for which you look at income through August 31, you use a multiplier of 1.5 = 12/8 and need to pay 67.5% of the tax on the annualized income, and so on.  If you miscalculate these numbers and pay too little tax in any installment, then you owe penalties for that quarter.  Most people find that guesstimating the tax due for the entire year and paying it in equal installments is simpler than keeping track of nuances of the annualized method. Even simpler is to pay 100% of last year's tax in four equal installments (110% for high earners) and then no penalty is due at all. If your business is really taking off and your income is going to be substantially higher in one year, then this 100%/110% of last year's tax deal could allow you to postpone a significant chunk of your tax bill till April 15. "Ed: Saw your comment, thank you. The short answer (a rough simplification), seems to be that you pay PA income tax for income made in PA. You pay IL income tax for income made in IL, not income made across both states. And you make sure the IL amount paid is correct via a credit calculated on Schedule CR. It looks to me (bear with me, I am no expert on tax law in IL, PA, or in general, so consult a professional for ""good"" advice :), like you basically do this on Schedule CR: It looks like there may be some more pertinent info on Publication 111, so that may potentially change the math a bit too. This check is 2014 income, during which you are a resident of IL. It's income from a PA employer. You must file a tax return in PA regardless, since you ""earned income in PA"". Did your former employer withhold PA income taxes on this particular paycheck? I'm not seeing where it says you should not include tax withheld; could you please point that out? Perhaps they mean you should only include tax actually considered ""due"" on the PA tax return. From IL's Schedule CR instructions: What is the purpose of Schedule CR?   Schedule CR, Credit for Tax Paid to Other States, allows you to   take a credit for income taxes you paid to other states on income   you received while a resident of Illinois. You are allowed this credit   only if you filed a required tax return with the other state. You must   use information from the tax return you filed with the other state to   complete Schedule CR.   ...    What taxes qualify for the credit?   Taxes that qualify for the credit are income taxes you paid to another   state of the United States,"