Newby questions

John Reynolds gnucash at reynj.fastmail.fm
Sat Oct 11 18:01:05 CDT 2003


On Saturday 11 October 2003 03:35 pm, Victor Roberts wrote:
> On Sat, 2003-10-11 at 00:30, Linas Vepstas wrote:
> > On Mon, Sep 29, 2003 at 01:14:59AM -0400, Derek Atkins was heard to 
remark:
> > > > 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?
> > >
> > > Ask your accountant?
> >
> > Hopefully there are some accountants hanging out on these mailing lists
> > that might be willing to answer the occasional question such as this.
>
> Federal or State income tax refund? Did you get a chect or credit?
> Neither is "income" but they have different tax consequences. A Federal
> Income tax refund is not income and has no tax consequences. If you want
> to show it as a credit against Federal Income Taxes it must be shown as
> a credit against taxes paid for the same year as the refund. That is, if
> this is a refund for TY2002 Federal Income Taxes then you can show it as
> a credit against your 2002 federal Income Taxes, but _not_ as a credit
> against your 2003 Federal Income Taxes, unless the IRS did credit your
> refund to your 2003 Income Taxes.
>
> If this is a State Income Tax refund it is also NOT income but does have
> Federal tax consequences. You will owe Federal Income Taxes for TY2003
> for that part of your State income tax refund that you deduced on your
> TY2002 Federal taxes. There is an IRS worksheet associated with Form
> 1040 to help you figure out how much of the refund is taxable.
> Therefore, State Income Tax refunds must be placed in a separate account
> so you can enter them properly on your TY2003 Federal Return.

I'm not an accountant, but based on what Victor says I feel better about my 
choice, which was to use Equity:Opening Balances. This may seem strange (when 
I looked at it earlier today it seem strange to me) but because I don't want 
it to be a credit to Federal Tax and mess up that calc. And I don't want to 
show it as Income, and mess up that calc. In light of the fact that I got the 
refund in April 2003, and my accounting period started Jan 1, 2003; I decided 
to treat it as money that was mine in 2002, but just was given back to me in 
April 2003 thus Opening Balance.

My $.02

John R.



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