Newby questions

[Tony De Simone]

Bill Wisse wrote:

>>>>2.  Where would it be appropriate to put an Income Tax refund?  It
>>>>really isn't an Income.  Should it be a credit to Federal Tax?  Would
>>>>this mess up the tax calculations for the year?
>>>>        
>>>>
>Anyway,
>IANAA but I think that every dollar you receive is income ( other income?) and 
>in this case it has nothing to do with Tax.
>
I am not an accountant either, but I follow a different strategy.  I 
don't treat refunds (or rebates) as income, but as offsets to expenses.  
Also, I'd like to know what taxes I paid in a period, say in calendar 
2002.  

Every time I have a transaction with withholding for taxes, I put the 
withholding paid in 2002 in an Expense:Taxes account. That's not exactly 
what I paid in taxes form 2002 because I'll get a refund on the withholding.

Say I get an income tax refund sometime in 2003.  Since the refund is 
from witholding in 2002, I should subtract the amount from taxes paid in 
2002.   If I did that by subtracting from the Expense:Taxes account, the 
taxes paid in the year would be wrong.

To make everything hit in the right calendar year, I have a 
Liabilities:Taxes account.  When I get a refund, I create twelve 
transactions, one for each month of 2002, that reduce the Expense:Taxes 
account and decrease the Liabilites:Taxes account.  The tax refund is 
then paid from the Liabilities:Taxes account into my bank account, 
increasing to 0 the Liabilites:Taxes account.  That makes things come 
out exactly right by year, and roughly right by month.

Of course if I were an accountant, the "right" way to do this would be 
to pay withholding into an Assets account and make periodic transfers to 
an Expense:Taxes account, but I decided not to do that because I would 
have to create my own trigger to come up with estimated tax payments.