Attn R.C.: Yearly explanation on adjusting entries for updating estimated tax accounts

R.C. Every year I get closer to understanding this,but this year I've lost my way. What kind of adjusting entry do I create to account for applying an overpayment in 2013 to my 2014 Federal estimated? Or do I even need one? Should the balance left in the Estimated account after making the adjustmen t for actual taxes due be that overpayment amount? It currently isn't, but it's very possible I had an error in prior years when I was just starting to implement your system that I never corrected and that could be throwing off the balance. I'll know what to zero in on if you can confirm one way o r the other.

Thanks!

Jo

Reply to
jo
Loading thread data ...

Hi, Jo.

Yes, I know about mindset and mental blocks. Been there, done that, many times. :^{

My FIT Prepaid account is permanent; it continues year after year. (In Quicken-speak, it is an Account, not a Category.) It never gets down to zero, but it does get reconciled AS OF December 31 each year. (Since Form

1040 deals in even dollars, I often need to make a minor adjustment to deal with pennies. If this is not done for every year, the minor amount might build up or shrink, so it's easiest to adjust it annually. And I did have to pick a year to start and adjust the year-end balance for that year.)

After I filed my return for 2013 about March 20, 2014, and recorded my actual liability for the year, the balance in my FIT Prepaid account as of March 20, 2014, was equal to the amount withheld so far in 2014. The actual entry AS OF 12/31/13 was to charge Income Tax Expense Category with the actual tax amount for 2013 and reduce FIT Prepaid by the same amount. And I can look back into that FIT account for the past several years and do the same arithmetic for each past year: the balance after recording last year's actual tax equals the current year-to-date withholding.

Yes - but...that would be the 12/31 balance. By the time you file your return, the account will include this year's YTD withholding and estimate payments, along with (or offsetting) last year's balance (whether balance due or refund). We might reduce the confusion by creating a NEW Account for each year's prepayments (withholding plus estimates), but then we wind up after several years with a lot of "deadwood" accounts to trip over in Quicken. The usually-painless annual reconciliation and adjustment seems easier and cleaner - to me.

No entry is actually required to apply last year's overpayment to next year's estimated tax - unless you choose to use annual FIT prepayment accounts. But you might want to make a scratch sheet to reconcile what the balance in the account represents.

RC

-- -- R. C. White, CPA San Marcos, TX (Retired. No longer licensed to practice public accounting.) snipped-for-privacy@grandecom.net Microsoft Windows MVP (2002-2010) (Using Quicken Deluxe 2014 R 7 and Windows Live Mail in Win8.1 x64)

R.C. Every year I get closer to understanding this,but this year I've lost my way. What kind of adjusting entry do I create to account for applying an overpayment in 2013 to my 2014 Federal estimated? Or do I even need one? Should the balance left in the Estimated account after making the adjustment for actual taxes due be that overpayment amount? It currently isn't, but it's very possible I had an error in prior years when I was just starting to implement your system that I never corrected and that could be throwing off the balance. I'll know what to zero in on if you can confirm one way or the other.

Thanks!

Jo

Reply to
R. C. White

Hi RC, I'm close, but not perfect. I have no withholding,no rounding issues, and the only estimated payment is in January, for last year. The tax expense ad justing entry is correct on 12/31/2013, and I can see my actual tax expense for 2013 in my "P/L" report. What's left in the account is off by somethi ng like $52. I'll have to look back in the account, which I started in 201

0 (it's a permanent account, like you outlined way back when). Somewhere I introduced an error, which wouldn't be surprising considering I managed to even enter a simple 2013 estimated tax payment into Turbo Tax incorrectly this year :(.

Thanks for the guidance.

jo

Reply to
jo

d the only estimated payment is in January, for last year. The tax expense adjusting entry is correct on 12/31/2013, and I can see my actual tax expen se for 2013 in my "P/L" report. What's left in the account is off by somet hing like $52. I'll have to look back in the account, which I started in 2

010 (it's a permanent account, like you outlined way back when). Somewhere I introduced an error, which wouldn't be surprising considering I managed to even enter a simple 2013 estimated tax payment into Turbo Tax incorrectl y this year :(.
[Qkn Dlx 2014 on Vista Ultimate 32-bit + SP2]

HOO-Kay!! After learning much in 2012 and previous years from R.C., Bartt a nd Jo, I STILL have a question - to which someone may say "can't you make t hat adjustment in your head?". Well, not easily...

QUESTION: Concerning the estimated tax asset account bandied about (R.C. ca lled it FIT Prepaid), GIVEN the statement that on making the Dec 31 of year 1 entry equal to that year's tax when it's calculated later the next year (year 2), if the FIT balance is positive a refund is in play and if balance is negative then that amount is tax still owed for year 1 to be paid in ye ar 2... doesn't that year-1-end balance also include the January, year 1 es timated payment for for the previous year (year 0), and year 0 final tax pa yment made in year 1 or year 0 refund received in year 1? The balance is no t really a "clean" one, is it?

Just asking....

Reply to
Al

Hi, Al.

By Jove, I think you're right! ;^}

It has been so long since I've had to deal with "quarterly" estimates that I overlooked that aspect. The 12/31/01 final balance in FIT Prepaid should be equal to the 1/15/02 estimated tax payment.

Then, assuming no other pertinent entries in the first 15 days of January

02, the ending balance on 1/15/02 will be zero. And the balance from there to 12/31/02 will be equal to withholding and estimated tax payments made for
  1. Including, of course, any overpayment from 01 applied to 02.

Thanks for pointing that out, Al.

Of course, this is only for "normal" taxpayers. Farmers, fishermen and maybe some others that I've forgotten have special rules.

(Al, whatever newsreader you are using threw in a LOT of extra linefeeds. I didn't bother to edit them out of your quoted post.)

RC

-- -- R. C. White, CPA San Marcos, TX (Retired. No longer licensed to practice public accounting.) snipped-for-privacy@grandecom.net Microsoft Windows MVP (2002-2010) (Using Quicken Deluxe 2014 R 7 and Windows Live Mail in Win8.1 x64)

[Qkn Dlx 2014 on Vista Ultimate 32-bit + SP2]

HOO-Kay!! After learning much in 2012 and previous years from R.C., Bartt and Jo, I STILL have a question - to which someone may say "can't you make that adjustment in your head?". Well, not easily...

QUESTION: Concerning the estimated tax asset account bandied about (R.C. called it FIT Prepaid), GIVEN the statement that on making the Dec 31 of year 1 entry equal to that year's tax when it's calculated later the next year (year 2), if the FIT balance is positive a refund is in play and if balance is negative then that amount is tax still owed for year 1 to be paid in year 2... doesn't that year-1-end balance also include the January, year

1 estimated payment for for the previous year (year 0), and year 0 final tax payment made in year 1 or year 0 refund received in year 1? The balance is not really a "clean" one, is it?

Just asking....

Reply to
R. C. White

Slight correction:

Of course, that should be a NEGATIVE balance, showing a liability, rather than an overpayment as of 12/31.

But if the January payment will result in an overpayment...Now I'm getting confused. ;^{

G'night.

RC

-- -- R. C. White, CPA San Marcos, TX (Retired. No longer licensed to practice public accounting.) snipped-for-privacy@grandecom.net Microsoft Windows MVP (2002-2010) (Using Quicken Deluxe 2014 R 7 and Windows Live Mail in Win8.1 x64)

Hi, Al.

By Jove, I think you're right! ;^}

It has been so long since I've had to deal with "quarterly" estimates that I overlooked that aspect. The 12/31/01 final balance in FIT Prepaid should be equal to the 1/15/02 estimated tax payment.

Then, assuming no other pertinent entries in the first 15 days of January

02, the ending balance on 1/15/02 will be zero. And the balance from there to 12/31/02 will be equal to withholding and estimated tax payments made for
  1. Including, of course, any overpayment from 01 applied to 02.

Thanks for pointing that out, Al.

Of course, this is only for "normal" taxpayers. Farmers, fishermen and maybe some others that I've forgotten have special rules.

(Al, whatever newsreader you are using threw in a LOT of extra linefeeds. I didn't bother to edit them out of your quoted post.)

RC

Reply to
R. C. White

R.C. Sorry about the line feeds. It may be because I've always used IE and just now changed to Chrome. I'll open newsgroup in IE and see what things look like. Pre-apologies to all for how THIS note looks like.

As to your answer, it comes like manna from Heaven and adds that extra kick that's going to get me over the goal line. Thank you, Sir, as always.

Reply to
Al

BeanSmart website is not affiliated with any of the manufacturers or service providers discussed here. All logos and trade names are the property of their respective owners.