Estimated tax payments in Quicken

I have read many postings in this forum and others on how to use Quicken
record estimated tax payments, and I think I have understood the
principles, but
some of the practical details are causing me difficulties. I use Quicken
I set up an asset account for pre-paid federal tax (estimated payments in
case) and when I write the IRS a check I enter the asset account in
Category field (it shows up in the register surrounded by square
brackets). The
entry is something like this:
4/16/07 (from) checking account (payee) US Treasury
(category) [Fed Tax pre-paid] (memo) 2007 1040-ES
Note that this example is for 2007. I am using that tax year to test my
method, since it is a completed year (1040 submitted, refund received) and
therefore a simple case.
As the year progresses I accumulate more into the asset account ? two more
payments just like the first one. And on Jan 15th 2008 I send in the final
estimated payment - to follow the ?transaction date within tax year?
I enter this in Quicken on 12/31/07 with the date the check cleared shown
in the
memo filed. The transaction looks like this:
12/31/07 (from) checking account (payee) US Treasury
(category) [Fed Tax pre-paid] (memo) 2007 1040-ES 1/22/08
In April 2008 when I have completed my return, I get a refund and this is
entered in Quicken as two transactions ? one showing the check deposit
to the asset account and reducing its balance, and the other showing a
from the asset account to an expense category for the actual total tax
that the
IRS got to keep, also reducing the asset account balance which now becomes
As before, I apply dates within the relevant tax year. These transactions
are as
12/31/07 (to) checking account (payor) US Treasury
(category) [Fed Tax pre-paid] (memo) 2007 tax refund 4/17/08
12/31/07 (from) [Fed Tax Pre-paid] (payee) US Treasury
(category) Federal Tax Self (memo) 2007 Total Tax from 1040 4/17/08
So far so good. The asset account has returned to zero balance and I have
a line
in my expense category for the Total Tax amount. I think I have correctly
recorded the money flows, but I have problems generating reports that
all of these transactions correctly. So I am wondering if I really have
things right.
For instance, the last transaction described above, where I finally put
Total Tax retained by the IRS in an expense category, does not show up in
Quicken reports. The only standard Quicken reports that I have found it to
appear in are the Budget, Spending By Category and Spending By Payee
reports. It
is omitted from many others including:
- Banking Summary
- Cash Flow
- Itemized Categories
- Itemized Payees
- Income/Expense By Category
- Income/Expense By Payee
- Tax Summary
- Business > Cash Flow
So, my BIG question is: Have I used the correct method for recording the
If the answer is no, then what should I be doing differently?
If the answer is yes, then the next questions is: How do I get the
to show up in Quicken reports properly?
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Reply to
Hi, Pat.
It seems to me that you've done everything right - or almost right. I have a couple of suggestions that might seem to be just cosmetic, but I think will make the process more clear.
First, the January 15 payment should be recorded when paid, just like any other check. Yes, I know this will leave the prepaid tax account showing less than the full year's estimates for a couple of weeks, but it's OK; it will work itself out.
Second, rather than wait for the refund check, go ahead and record the actual tax for the year when you file your return. Date that actual-tax entry on December 31, as you have been doing, even though you don't know the amount until your return is completed, maybe in April. This entry of the actual tax as a reduction to prepaid tax should leave that prepaid account with an amount equal to the refund you expect to receive. Then, when you receive the check (or direct deposit) a few weeks later, the prepaid account will be reduced to zero, ready to receive the first estimate for the next year.
That leaves only:
This may be simply a matter of confusing Quicken about dates. The actual tax should show up in the prior year, of course, not the current year, and that should be taken care of by dating your actual tax expense entry as of December 31 of the actual tax year. I'm not a big user of reports in Quicken, but I do handle my tax entries that way and my Income/Expense by Category Report shows it as an expense of the correct year.
My first theory was that you are confusing "cash flow" with "expenses". It's understandable that the 12/31/07 entry would be omitted from Cash Flow, because no cash "flowed" on that day - and the actual tax amount did not flow at that time. But it still should show up in Income/Expense by Category; mine does. You might want to recheck your settings for that report; those settings confuse me, and maybe you, too. For example, when I looked just now, my tax expense was not under Federal Income Taxes, but in "Fed. Inc. Tax", which might be a holdover Category from the years when names had to be much shorter. (In looking through prior years, I found that some of my interest payments were still in "Interest Exp", rather than "Interest Expense", so I changed them to get consistent results for all years and a proper total expense.)
Let us know when you find what is causing this reporting problem. I'm sure that others (including myself) will be interested.
Reply to
R. C. White
Hi Pat,
Finally someone posts a method for handling these taxes! I don't know how I missed previous discussions of it, but it's bothered me longer than I want to admit, and I've been a Quicken user for eons. Boy, do I feel stupid. An Asset account... I sure didn't think beyond a very narrow box with this one. I'm going to save this thread so I can go back and fix my most recent years.
Re the reports, I think RC is on the right track. It's always been some setting or category renaming that has made them drop out of reports for me. Rc is almost always right about these things.
Reply to
Pat - I trust when I re-post, I am going to get in a lot of "trouble" from R.C. when I ask you the *real* question I have in mind, but I'll do it anyway. But first, I need to know if you use Turbotax (or I supposed Taxcut et. al) and import your tax information into those programs from Quicken?
Reply to
So it looks like Pat is not going to answer, or perhaps isn't looking at this thread anymore. So I'll ask my question and see what happens. Assuming one does NOT use Turbotax to import tax info from Quicken, why go to all the trouble that has been discussed here about setting up 'asset' accounts and so-on? Why doesn't one just simply categorize the payment from your checking account to a category that is linked to one of the Sch "A" tax lines and leave it at that?
During your tax prep time, run one of Quicken's tax reports to see all the transactions sorted by Schedules and manually take it from there?
Why make this so complicated? What am I missing??
Reply to
Hi, Andrew.
TurboTax has nothing to do with this topic.
It doesn't matter how you do or plan to do your income taxes. This is about accounting for your money from the time you pay it to the IRS until the time you compute the actual tax and then pay the balance or get some of your money refunded.
So it really isn't a tax question at all. It's about prepayment of an expense. And Prepaid [put your own choice of expense - Insurance, Rent, Telephone - into this box] is an Asset, not [yet] an Expense.
The mechanics and timing of income tax payments are different from other expenses, but the principle is the same. We put the prepayments into an Asset Account until time to transfer some or all of it to the Expense Category.
Except for the timing and method of payment, Estimated Income Tax payments are exactly the same as Income Tax Withheld from paychecks. Part of the timing difference is that withholding happens only DURING the tax year, before December 31, while the final estimated tax payment is not due until January 15 of the following year. This confuses the mechanics, but it does not change the principle.
This discussion could go on much longer, Andrew, but what needs to be said has already been said in this thread.
Prepaid Federal income tax has NOTHING to do with Schedule A.
Reply to
R. C. White
Hi back! Thanks for reading.
I'm somewhat familiar of this if one was running a business with accrual accounting, but we're talking about personal expenses using cash accounting, right? If I write the check out from my account, the money leaves my account right away, I'm out the money right away. Just as if I wrote a check to a grocery store. So why not simply use a tax-related category and let it be that?
Of course you're right. Finger slip. I meant one of the 1040 Federal Tax categories to categorize it. At the end of the year, that money is as much paid to the government as tax deductions from my pay checks. Why not simply use the same category as those? I'm trying to figure out what 'problem' the OP is trying to solve.
Again, I am sure that from a theoretical accounting point of view, it's correct to set up these other accounts and such, but from a personal practical matter, isn't this overkill? So I must ask, what's the point?
Reply to
After Andrew corrected for his "finger slip", I've got to agree with him on this one.
U.S. Tax laws require that Federal Income Tax be PAID on an "as you go" basis. And "paid to the US Treasury" sounds like an expense to me, not a "the Treasury's holding an account on my behalf".
So, unless one is going to transfer the tax monies into an asset account, and almost immediately transfer that amount to a category associated with Form 1040k, Line 63 (Estimated Tax Payments, from the 2008 Form 1040), the monies are paid at the time that they're withheld or the Form 1040ES is submitted. They're an EXPENSE at the time that they're withheld or remitted.
I suppose that it could be argued that they're not paid until the employer remits the amount to the Treasury ... but since most employees have no way of knowing that precise date, I'd submit that this scenario represents a "difference without a distinction".
It's certainly possible that the "during the year" payments (by whatever method) will result in an overpayment, which would certainly be an asset, but they could equally result in an underpayment. Or, rarely, they could precisely equal the Total Tax amount (Line 61). But recording over/under pays is a separate topic from this, which I understand to be "recording tax payments made throughout the year".
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