Hi All,

I am not an accountant, so I am learning as I go. In Business Basics, I record my PAYG installments under the Expense account 'Company Taxes'. Recently I paid my taxes for 2008 FY (yes very late, I know), and recorded that payment again under Company Taxes. I am not sure if recording the taxes under an expense account is correct. Is it? That would make income tax an expense, which would reduce tax liability. Weird.

Thanks in advance!

I think that would depend on if you are a C Corp or not. If not, the majority of businesses, then the income tax is a personal expense not a business expense.

quote:

Posted Sat April 11 2009 11:02 PM
Hi All,

I am not an accountant, so I am learning as I go. In Business Basics, I record my PAYG installments under the Expense account 'Company Taxes'. Recently I paid my taxes for 2008 FY (yes very late, I know), and recorded that payment again under Company Taxes. I am not sure if recording the taxes under an expense account is correct. Is it? That would make income tax an expense, which would reduce tax liability.

First, you have to tell us what legal form the business is formed. Is it a corporation, a partnership or a sole propiertorship.

It sounds like you are operating as a sole proprietoship, that's why you do not seem to have any general guidance regarding tax.

If you are the sole owner, all of the payments are personal ones and they will be used to pay for the tax (Self-employment and personal income) liabilities. These would not help you to reduce tax liabilities.

For a corporation (S-corp or C-corp) the taxes you pay for State & City corp taxes, employment taxes are deducted from the income. For a partnershi, employment taxes paid for the employees are deductible.

Hope this helps,