Hello. For a sole propriotorship in Canada, taxes for the business are accessed and due only as part of my personal income tax. In my accounting for the business, I have decided to set aside a percentage of my revenue to provide for the future tax expense. What would be the accounts that I must set up to record this? Thanks.
concept question - setting up specific accounts
May 17, 2005
3 Replies
Income tax for a sole proprietorship is not a business transaction, it neither must nor should be part of your business accounting.
If you pay the tax from your business bank account, you charge it to Owner's Equity (or Draws) the same way you record draws or payment of personal amounts.
However there is no entry to record for merely "providing for the future tax", and it is not an "expense" of the business.
accounting
If you really want to track this separately, set up a separate account called: "Owner's Draw - Taxes" and put the money in a separate personal bank account (or pay estimates if that's how it's done in Canada).
Alternatively, you could Debit an account called "Reserve for Taxes' and Credit something like 'Accumulated Reserve for Taxes', but these might confuse your accountant, and could complicate your books.
Best regards Bill
Thank you both for your replies.
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