How do I do this?

Hi, Bill.

WHY do you want to show this as a CURRENT tax expense? You said it is for a prior year. It should be recorded as an expense of that year. Since that year's books have already been closed, the only correct way is to go back and open that year's accounting and make the entry there. Since that is usually not possible or practical, the next-best solution is to record the whole $1,000 as a current-year expense in a Category (in Quicken) with a name such as "Prior-year Tax". The initial entry would debit this Category $1,000 and credit the IRS Liability account $1,000. Your monthly payments then would reduce the liability, but not change the already-entered expense amount. The expense was for a prior year; this year, you are not paying an expense, you are paying off a debt.

You know, of course, that federal income taxes are not deductible, whether they are for the current year or a prior year, so this exercise is purely for your own accounting, not for your tax return. Any interest or penalties would be handled separately; those amounts are not taxes but they are expenses and liabilities until paid. When I was in practice, the interest was deductible when paid, but those years are far behind us.

Some taxes, such as state income taxes, may be deductible in the year paid, so they may require different treatment. But you did say "IRS", so I assume these are federal income taxes.

If I've misunderstood your question, please post back.

RC

You can't.

When you recorded the liablity you recognized the expense: Debit expense/ credit Liability. From an accounting perspective, you "paid" the taxes when you recorded the Liability.

When you pay the liability off you reduce the liability balance: Debit Liability / credit cash.

It's entirely the mechanics of the entry.

I understand your instructions. The problem I'm having (the one I'm trying to avoid) is when I look at last month's budget (let's say it's the first one with the $100 payment), I don't see the $100 as an expense but I guess that's the same as my credit card balances.

Thank you,

Bill

The accounting information in the 2 above replies is correct. Maybe it's the mechanics of the entry that's baffling you?

Establish the liability account with an appropriate name - "Prior Years' Fed Tax Liability" would be good - enter a "Statement Date" that's appropriate (maybe the date you and the IRS agreed on the amount?) and leave the "Ending Balance" at $0. Establish a Category that seems appropriate to you, like "2005 Federal Tax Expense" and then make an entry in your new liability account for $1,000 with the offset in your new category. That entry results in a $1,000 expense in the current year. Then as you pay your $100 per month the liability is reduced with each payment.

Tom Young

You are correct. It operates much like a Credit Card. An expense when the event occurred and after that just "transfers" between checking and the IRS. You could set-up the account like a Credit Card in Quicken (I often do this because of the ease of reconciliation).

Oilcan

-----Original Message----- From: Bill Allen [mailto: snipped-for-privacy@cox.net] Posted At: Thursday, December 18, 2008 3:42 PM Posted To: alt.comp.software.financial.quicken Conversation: How do I do this? Subject: Re: How do I do this?

It's entirely the mechanics of the entry.

I understand your instructions. The problem I'm having (the one I'm trying to avoid) is when I look at last month's budget (let's say it's the first one with the $100 payment), I don't see the $100 as an expense but I guess that's the same as my credit card balances.

Thank you,

Bill

liability

The accounting information in the 2 above replies is correct. Maybe it's the mechanics of the entry that's baffling you?

Establish the liability account with an appropriate name - "Prior Years' Fed Tax Liability" would be good - enter a "Statement Date" that's appropriate (maybe the date you and the IRS agreed on the amount?) and leave the "Ending Balance" at $0. Establish a Category that seems appropriate to you, like "2005 Federal Tax Expense" and then make an entry in your new liability account for $1,000 with the offset in your new category. That entry results in a $1,000 expense in the current year. Then as you pay your $100 per month the liability is reduced with each payment.

Tom Young

Hi, Bill.

As we've discussed often in other contexts, do not confuse income and expenses with cash flow.

When you borrow $1,000, it is a cash inflow, but it sure isn't income. And when you pay it back, it is cash outflow, but it is not an expense. Of course, when you spend the $1,000 you borrowed, you probably are paying an expense at that time - but you might be buying some equipment or paying off a different debt, and neither of those cash outflows are current expenses. Most cash outflows are expenses, but often in a different time period than the outflow.

Your $100 monthly payments should show up in a Cash Flow Forecast, but not in an Expense Budget. In Quicken, the method Tom outlined should work for you.

RC