[martinasm]

Need to know how to set up accounts to record corporate taxes payable and income tax expense

[morgaine300]

What do you mean by 'set them up'? Are you referring to some specific software?

[martinasm]

I use simply accounting, but just not sure how to post entries for income taxes. Example, I just figured out that I should credit corporate income tax payable and debit income tax expense and then when I make instalments I would debit corp. tax payable and credit chequing account.

However, what do I do at the end of the year when I either have a refund or have to pay more tax? I realize I would debit or credit the chequing account but where would I put the other entry as it would be for 2009 and now I'm in 2010?

[morgaine300]

Let's back up a sec. You don't have to make those entries during the year to the expense and put them into payable. When you pay your quarterly installments, just debit the full amount to the expense and credit cash. (Unless you like having the expense in there on a montly basis - just saying you don't have to do that.)

At year-end, you need to figure out what the tax liability is going to be. The simple answer is that whatever has not yet been paid is debited to the expense and credited to the payable -- you should know what these numbers are before closing out your books. Things from 2009 shouldn't be affecting 2010.

(The above under the assumption of an accrued basis. Otherwise, I don't know why you'd be using the payable at all.)

The complicated answer is that what you would consider tax expense to your corporation is likely not the same as what you will consider the tax liability for the IRS. Well, it might be, but even small simply businesses that aren't fully following GAAP can have differences between book and tax. And that is altogether a different subject. Do you know what I am referring to?