Taxes in P&L statement?

Question

I'm a officer/founder of a small C corp. Another person is responsible for the bookkeeping (who is not an accountant, but an engineer) with the help of a CPA. Every quarter the "bookkeeper" generates a YTD P&L statement from QuickBooks (I guess it can do this automatically). This is probably not relevent, but he generates CASH and ACCURAL version for us for reference, although we file our taxes using CASH.

My specific question is should taxes (e.g. federal) paid (and TAXES due for the accrual case) be included as a Expense on the P&L? He says yes, but I think they should not be.

In our case tax management is one our primary concerns (distributing salary/commision payments over the year to minimize profits, corporate taxes, and late estimated tax penalties). When taxes are included in the P&L you have to remember to add these back into the net income to to estimate the taxable profits.

Does the standard definition of a P&L include taxes or not? - Thanks

QBConsultant · Accepted Answer

Since you're a C corp, the corporate income taxes are an expense. You can list them as other expenses so they show up at the very bottom of the P&L. But, I'm not a tax expert.

Michelle L. L> I'm a officer/founder of a small C corp. Another person is responsible

John · Answer

the accrual method of accounting should include taxes relating to that period of income (not what is paid out of the cash account) it's calculated as a percentage and adjusted later. The accrual P&L from the quickbooks reports should not include taxes "paid" but just the taxes for that quarterly period. there is no double counting if that is what you are asking

Paul Thomas, CPA · Answer

wroteYes.  Taxes are an expense of the business, even though federal income taxes are not an expense of the business (same for individuals if you recall).If your business is small, you may want to consider keeping your books on an income tax basis, which may give you a better picture of your taxable profit.  Besides federal taxes, penalties and other items are not be deductible by the company on it's return.  These type of financial statements are most useful for the owners and others who are deeply tuned into the daily operations of the business, and may not be suitable for those outside of the business who may not have a full understanding of your accounting practices.While federal income taxes are not deductible by the company on it's tax return, they still are items that appear in a financial statement, even one kept on the income tax basis.As suggested, maybe consider placing corporate federal income taxes in an "Other Income/Deductions" category below a "Net Profit/Loss From...

Rocinante · Answer

Yes, you should include them on the income statement.

They should be recorded according to GAAP:

On an accrual basis, deferred tax assets and liabilities are recognized when there is a temporary difference between the stated value of an asset or liability for tax purposes and the value for financial reporting purposes. The deferred tax is also contingent upon the expectation that future revenue and income will be sufficient to offset the deferred tax.

Taxes in P&L statement?

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