If you are expected by the tax authorities to pay your income taxes in installments throughout the year on a monthly or quarterly basis, you will need to do some extra bookkeeping to keep track of your tax payment activities.
Here are the instructions on how to enter prepaid income tax installments into Kashoo.
Create 3 new accounts
You will need to go to the Accounts page and create 3 new accounts:
Income Tax Expense Account
Prepaid Income Tax Installment Asset Account
Income Tax Payable Account
Recording Tax Installments
Tax Installments are recorded using the Income and Expenses section, under Enter Expense. Please select the payment account as your Bank account and the Category as the “Income Tax Installment” asset account. To do this, you can:
Type in “Tax” as a keyword and our online accounting software will find the asset account for you.
Scroll down and click on the Show All Accounts link and we’ll give you a long list of accounts to choose from. We suggest using the keyword method.
Filing your income taxes at the end of the year
To record your income tax owing after filing your taxes, please refer to the following instructions:
Fill in your year-end date in the Date field
In the payment account section, select either checking account if you are paying your taxes right away or income tax payable as the payment account. The income tax payable account can be found using the keyword method described above.
You will need to fill in two expense account lines with:
- Income tax expense: the amount of taxes you owe
- Prepaid tax installments asset: minus (-) the amount you have already paid in installments.
If this yields a positive number, you will need to pay income taxes. If this yields a negative number in the end, you will be getting a refund.
If you are expecting a refund, you should have a negative income tax payable account.
Paying your Income Tax
When you are ready to pay your income tax, use the Pay Bill tab under Income and Expenses to enter the payments to your tax agency.
Receiving an Income Tax Refund
Everyone wants to get a refund and if you are getting a refund, you will need to go to the Pay Bill tab under Expenses and enter a negative (-) bill payment when you get a refund to zero out the Income Tax Payable account.