Accounting question

[DaveC49]

Hi Gus,

In most cases you pay tax installments from your income in advance against
your Tax liability for the year and your full tax liability is not known
until the end of the year when your taxable income is usually assessed by
your tax office.  one possible way of treating this is to accumulate your
advance payments in a liability account  Tax:Installments Paid which acts as
a contra account to Tax:AssessedTax , i.e. they both are subaccounts of a
liability account Tax: and are summed into that header account. For your
monthly income of 1200 euro with 200 euro tax, the monthly transactions
would be:

Asset:Bank                                             Db 1000
Liability:Tax:InstallmentsPaid        Db    200
Income                                                                                     
Cr 1200

At the end of a 12 month period ( assuming no change in the  salary or tax)
the Tax: InstallmentsPaid will have a Db balance of 2400 euro.  If we now
assume for example that your assessed tax is 2000 euro for that year (
assuming you have some deductible expenses or tax rebates etc), you could
record this as

Liability:Tax : AssessedTax                                              Cr
2000
Expense: TaxPaid                            Db 2000

and when you receive the refund  of 400 euro ( usually at the same time you
receive the assessment of tax for the year, you record the refund as

Liability:Tax:InstallmentsPaid                                       Cr 400
Asset:Bank                                           Db 400

( here if you had additional tax to pay over the installments the Db and Cr
would be swapped between the accounts)
and the balances in your Liability tax accounts then become (as the debit
and credit balances in the sub-accounts sum to a zero balance  recorded here
as Db  as a liability account Db balance is a positive balance)

Liability: Tax                                         Db 0                                                     
i.e. there is no net tax liability 
Liability:Tax:AssessedTax                                            Cr 2000              
what your tax office assessed your tax as
Liability:Tax:InstallmentsPaid      Db 2000                                            
the 2400 in installments paid less the 400 refund.

While this may seem a bit complex, it does ensure you have a complete record
at all times of the tax owing installments paid, refunds received etc. If
your tax system has some differences from the system assumed above , there
may be additional or redundant steps. It gets around the problem of having
to have credit transactions to the Expense:tax paid at the end of the year
when the assessment is received and you only expense the total amount when
the assessment is received. It also treats the situation where your
assessment does not arrive until sometime into the new tax year in which
case you simply carry the liability accounts forward into the next year. Tax
systems are highly legislation and jurisdiction dependent, so if you are
using this for tax assessment purposes , it may be beneficial to get local
professional advice as the above scheme is appropriate for the tax system
where I live. 

Cheers
DaveC49

 




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