Accounting question

[A.J. Bonnema]

On 06/27/2016 02:52 PM, DaveC49 wrote:
> 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
>
>   
Thank you, Dave. A very clear explanation. I can use your setup for our 
tax system.

P.S. Up until now I just ignored tax paid, and regarded tax return as 
income. It. works to a point, but this is clearly better.

Again, thank you your clear answer!

Kind regards, Guus.