How to balance an account?

[Mike or Penny Novack]

Jean-David Beyer wrote:

>I have a liability account where I keep the state end-use tax due on all
>my purchases. I put the amounts in to the nearest cent. My income tax
>program (TaxAct) rounds all values to the nearest dollar, and the state
>government considers this acceptable. I pay the tax along with my state
>income tax return (specific line item for this on the tax form).
>
>But now when I make the tax payment, the liability account does not
>balance. I need, this year, to put another $0.48 payment in there to
>balance the liability account, but from what account would I take it,
>since it would be wrong to take it from the cash, or the checking
>account? In fact, it seems to me that it would be wrong to take it from
>any account. I could set up an Equity account for this, but that feels
>wrong too. I cannot enter it as a refund from the government either,
>because if I do, it would be income that is taxable on my federal tax
>return.
>
>What is the right way? I cannot be the first person to have this problem.
>  
>
Take a step back first.

1) You say you put the (unpaid) "use tax" amount into a liability 
account? What was the other side of this transaction? Being double entry 
bookkeeping there HAD to be a debit to balance the credit (the 
liability). So when you do your taxes you found that you made the 
liability too large? Why can't you now make it a little less (debit 
liability for the $0.48 and credit whatever the account was that you 
were using for this).

2) Depending on the rules of your state, you might never pay this "use 
tax" amount. For example, I am in MA and we have this sort of thing 
along with the rule that you can pay EITHER the actual amount (you kept 
records, willing to defend that you didn't owe more) OR a "safe harbor" 
amount based upon adjusted annual gross income for state purposes. So if 
you did keep accurate records would would pay the actual only if less 
than the "safe harbor" amount. In  other words, if in MA you might 
always end up adjusting this liability to the safe harbor amount.

Michael