Greenleaf Accounting

Virtual Bookkeeping & Accounting Services

(814) 450-0072
  • Email
  • LinkedIn
  • RSS
  • Twitter
  • Home
  • Services
  • About
  • Testimonials
  • Blog
  • Contact

How to Record Estimated Tax Payments

August 9, 2016 by Deb Howard Greenleaf

How to Record Estimated Tax Payments by Greenleaf AccountingOne of the most common questions I get from business owners is how to record their estimated tax payments each quarter. Are they an expense? Should they be reported as some kind of liability payment? It’s all so confusing, right? Well read on to see how simple the answer really is!

 

Your Business = You

 

If your small business is a sole proprietorship and you file a Schedule C with your tax return each year to report your business activity, then the taxes that you pay each quarter are actually personal payments. You may be paying estimated taxes because of your profitable small business, but the IRS doesn’t really see you and your business as separate entities. The taxes on your business profits are intricately intertwined with your other personal  income, your personal deductions and those of your spouse, as well.

 

So, in a perfect world, those estimated tax payments would be coming from your personal bank account. We don’t live in a perfect world, though, and many small business owners pay those estimated tax payments directly out of their business account. This is fine so long as you report those payments properly!

 

I have seen estimated tax payments reported as “Tax Expense” and even “Miscellaneous Expenses” in various QuickBooks files over the years. Both of these are wrong! Because those estimated tax payments are actually personal, they are not business expenses at all. Rather, they are treated the same as Owner’s Draws.

 

To simplify the tracking of estimated tax payments, I recommend setting up a new Equity-type account called “Owner’s Tax Payments” in the Chart of Accounts. By making this new account an Equity-type account, it does not affect your Profit & Loss Statement and properly treats those tax payments as draws on the profits of the business.

 

Payment Options

 

Not sure how to send those tax payments in to the IRS? You can use the Electronic Tax Federal Payment System (EFTPS) or IRS Direct Pay.  Direct Pay is great for sending a quick payment, as you receive instant confirmation that your payment has been submitted and no pre-registration is required. You can also schedule a payment up to 30 days in advance, so Uncle Sam doesn’t get your money any sooner than necessary! While EFTPS does require a registration in advance, the actual process only takes about a week. The main advantage of EFTPS is the ability to schedule several payments up to 365 days in advance.

 

When tax time rolls around, it will be incredibly easy to run a report on transactions in that new account. You will know exactly when those tax payments were made and the amount of each.

 

What about when your business in an LLC? What do you do then? Read next week’s blog post on LLCs, then come back here with your newfound knowledge. (Hint: It doesn’t change much!)
Have a question about recording estimated tax payments? Leave a question below

Deb Howard Greenleaf
Deb Howard Greenleaf

Deb Howard Greenleaf, EA, CEO and Principal, of Greenleaf Accounting Services provides virtual accounting and bookkeeping services and specializes in financial management to consultants, coaches, solo professionals, and other small business owners across the US. Deb is an Enrolled Agent (EA)—an IRS-licensed tax professional—and specializes in small businesses and entrepreneurs filing Schedule C or as an LLC. As an Advanced Certified QuickBooks ProAdvisor, Deb spends her day in QuickBooks Online and specializes in providing QBO support.

Related posts:

Default ThumbnailOptions for Paying Estimated Taxes Default ThumbnailIt’s Tax Day Again? Default ThumbnailTracking Estimated Tax Payments in QuickBooks Default ThumbnailEstimated Tax Payments Due September 15th

Filed Under: Best Practices, Bookkeeping, Greenleaf Accounting, New Business, Small Biz Taxes

Free 1099 Success Cheat Sheet

Want to be ready for 1099s at year end? Learn how with my 1099 cheat sheet.

Browse by Topic

  • 1099 Reporting
  • Best Practices
  • Bookkeeping
  • Greenleaf Accounting
  • New Business
  • Quotations
  • Small Biz Taxes

Recent Posts

5 Best Practices for Invoices That Get Paid Faster

We're excited to introduce a few new voices with the first in a series … [Read More...]

How to Pay yourself as an S-Corp

If your business is set up as an S-Corp (or an LLC with an … [Read More...]

Is an S-Corp Right for Your Business?

With all the recent tax shakeups, more and more small businesses are … [Read More...]

Estimated Quarterly Taxes Due Soon!

It's that time! The deadline to pay your fourth estimated tax payment … [Read More...]

Contact

(814) 450-0072

Free 1099 Success Cheat Sheet

Want to be ready for 1099s at year end?
Learn how with my 1099 cheat sheet.

Recent Posts

  • 5 Best Practices for Invoices That Get Paid Faster
  • How to Pay yourself as an S-Corp
  • Is an S-Corp Right for Your Business?
  • Estimated Quarterly Taxes Due Soon!
  • Budgeting for 2019

Reliable, Efficient and Precise

“Deb has handled my company’s invoicing and bookkeeping with impeccable attention to detail and service for several years. She is reliable, efficient and precise – remembering logistics, following through on details, and always smiling. I appreciate her help and value her expertise in handling my finances. Deb is the quintessential professional – I highly recommend her without hesitiaton.”

– Dr. Camille Preston, Owner,
AIM Leadership, LLC

Knows Her Stuff Inside & Out

“Deb is an amazing person, not only at what she does (in which she excels) but her personality is simply the best! She is always in clear control of her work; she knows her stuff inside and out; and she’s such a joy to work with and to count as a friend! I would highly recommend Deb to anyone who is looking for someone who is “above and beyond” the normal bookkeeper.”

– Vickie Turley, Chief Administrative Manager,
BossaNova Consulting Group, Inc.

© 2023 Greenleaf Accounting Services · Privacy Policy · Terms and Conditions