Last year's tax return

[Rob]

On Wed, Sep 9, 2015 at 11:59 AM, Michael Vrable <vrable at cs.hmc.edu> wrote:

> My strategy has been to create a liability account for taxes due but not
> yet paid.  Once I've figured out taxes for 2014, I create a transaction
> dated the end of the year for the tax expense:
>     2014-12-31  Federal Taxes Due
>                 Expenses:Taxes:Federal      500
>                 Liabilities:Taxes                   500
> so taxes show up as a 2014 expense.
>
> The tax payment with the tax return is then to pay off the liability and
> doesn't affect the 2015 income statement, but does show up as a cash flow
> item for 2015:
>     2015-04-15  Pay 2014 federal taxes
>                 Liabilities:Taxes           500
>                 Assets:Bank                         500
>
> (At the end, the Liabilities:Taxes account should be back to a zero
> balance.)
>
> --Michael Vrable


This is one approach, but not feasible if one actually closes the books at
the end of a year.  An alternative approach is to create additional expense
accounts akin to:

Expenses:Taxes:Federal - Prior Year

It still has the same challenges of reflecting tax dollars that aren't
matched to the proper time period, but gives the user/audience the
capability to distinguish what taxes have been paid YTD for the current
year.  The "best" solution from my perspective would be to post an accrual
at the end of the year for one's best-guess and use the Prior Year account
for any true-ups.