How to balance an account?

[Jean-David Beyer]

On 03/16/2013 03:25 PM, Mike or Penny Novack wrote:
> 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).

Here is a typical transaction:

2013-03-14 Amazon.com                                      15.91
           Hang On To Your Kids Expenses: Books            15.91
                                Liabilities:American Express     14.87
                                Liabilities:EndUseTax             1.04

Note 1: The amount on the American Express line is what Amazon actually
charged me for the book, including shipping, and notified American
Express about it. I pay that at the end of the month.

Note 2: The amount of the EndUseTax line is the amount that is due the
State of New Jersey for the purchase of that book. I have to pay this
tax with my state income tax.

Now at tax time, do I arbitrarily take some transaction of the year,
and, in my case, reduce the EndUseTax and the Expenses:Books lines by
$0.48? If I do, that item would be incorrect, and if the N.J. tax
auditor were to look at that item, he would rule I am cheating the state
of $0.48, and then do a more severe audit. Realistically, I imagine this
will never happen, but it would be wrong and I would have trouble
swearing that transaction was correct when actually I had made it incorrect.
> 
> 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.

I have not read the law, but just the brochure issued by the state, and
it makes no mention of anything like this (New Jersey). I do not know
anyone who pays this tax except me. They all just say they never bought
anything out of state except automobiles, where they get you as soon as
you try to register it in New Jersey. And you have to do that pretty
soon (I think 90 days) of entering the state. Some tax I cannot avoid.
Dell, for example, charge me the NJ End Use Tax up front, so I do not
have to pay it again. But Amazon do not.
> 
> Michael
> 
Should I set up a new Income category, call it something like
RoundOffGifts, arrange that it be non taxable income, and transfer the
$0.48 from there? That does not appeal to me as that account would just
build up over time.