Income Tax Refund?

It depends on your belief system.

Some people believe that since we used to record transactions on paper, where transaction date sequence was the only possible sequence, that God intended for us to always record in transaction date sequence and that lighting will strike us dead if we don't. Further, that if they don't record checks & deposits with transaction dates that their Quicken account will not match the banks account (it doesn't match anyway!) and that, if not lighting, something else bad will happen.

Some people (at least one - me) believe that we should record transactions with the most useful date (with the actual transaction date in the memo field). It's useful, I think, to be able to simply (without classes, special categories, ...) ask Quicken for a complete report of

2005 taxes. Should you want to file an amended 2005 return, for example. And more that just 2006 might be involved - tax transactions for 2005 can take place in 2007, 8, ... It can also be argued that recording 2005 transactions in 2005 results in year end 2005 net worth, etc., reports having a better measure of just how you did in 2005.

So record 2005 federal tax transactions dated 2006 with the date

12/31/2005.

For state taxes, you need to record those transactions for both 2005 (for the reasons above) and for 2006 (since a state refund of 2005 taxes made in 2006 is an input to your 2006 federal taxes. So for state transactions, say a $1 refund, make three Quicken entries

12/31/2005 $1 state tax refund 4/23/2006 $1 state tax refund 4/23/2006 - 1 state tax refund offset

The offset so that we've recorded the 2006 transaction without increasing expense (the expense was recorded with the 2005 entry)

I've not indicated categories for these entries; if you can't figure it out then subscribing to the 1st belief system may be the best option.

dick w

If you are on a "cash basis" then you post it as a deposit on the day received. It does not matter that it was for 2005. You received it in 2006 so it should have a 2006 date.

If you are on an "accrual basis" then you needed to record the deposit as

12/31/05 that will stay outstanding until you actually receive the money.

Hi, Carl.

A search of this newsgroup's archives should turn up several discussions of this topic.

Dick Weaver's posts on these topics are always informative.

As a retired CPA, my method is to make an entry dated 12/31 of each year, but based on the Form 1040 I file by April 15. This 12/31/2005 entry, actually entered sometime in 2006 after my 2005 return is finished, records my actual 2005 tax as a 2005 expense. It reduces my Prepaid Tax Account to zero (as of 12/31/2005; any 2006 amounts remain in the account until

12/31/2006, of course), leaving me with a balance to be received as a refund or a balance of tax due that I will need to pay - as a 2006 transaction - when I file the return.

It might make things a little clearer if I used multiple Prepaid Tax accounts, one for each tax year. But it's not too confusing to just look back and be sure that my balance in that single account as of 12/31/2005 was zero - or the amount of my refund.

Since I no longer receive a paycheck, there is no longer any income tax withheld for me. The Prepaid Tax account holds my estimated tax payments until I prepare my return and learn what my actual tax turns out to be. Many "normal" people might prefer to call this account something like Accumulated Income Tax Withheld. And they may want a second such account for their State Income Tax Withheld. Maybe, after recording the actual tax for the year, there will be refundable balances in both those accounts.

When the refund check is actually received, don't show it as income, but as a credit (sorry for the accountant-speak) to the Withheld or Prepaid account. After all, it's NOT income; it just reduces the prior-year tax expense to the actual amount of the tax.

Maybe an example would help. Assume that 2005 withholdings added up to $1,000, and that's what showed on the 2005 W-2 form, received early in 2006. When my return is done on March 1, 2006, the actual tax turns out to be $800, so I expect a $200 refund. On March 1, 2006, I make an entry in Quicken, dated 12/31/2005, in my Income Tax Withheld account (which had a balance of $1,000 as of 12/31/05). This entry records $800 to my Income Tax Category; since it is dated 12/31/2005, it does not affect my 2006 income or expenses. After this entry, the 12/31/05 balance in my Income Tax Withheld account is $200. When I receive that refund check on or about March 30,

2006, I will credit it to Income Tax Withheld, in an entry dated 3/30/06. After that entry, the balance in my Tax Withheld account should be equal to my 2006 withholdings to date.

RC