Make Sure You Recorded Your IRS Tax Payments Correctly and NOT on the P&L

Make Sure You Recorded Your IRS Tax Payments Correctly and NOT on the P&L

Make Sure You Recorded Your IRS Tax Payments Correctly and NOT on the P&L

You may think that any money you send to the IRS is a business expense, but in general that’s not true! Payments to the IRS could be any of the following:
  1. Payroll taxes. Federal and state income tax withheld from the employee’s paycheck and the employee’s share of social security/Medicare tax are part of the employee’s compensation and are deducted as wages. Only the employer share of social security/Medicare tax and employer-paid federal and state unemployment taxes should be reported as a tax expense on the P&L.
  2. Income taxes paid on behalf of the business or one of its owners. If you use business funds to pay an owner’s estimated taxes or a tax balance due, record those amounts as owner draws. These taxes are a personal expense, not a business expense.
  3. Interest, penalties, and fines assessed by the IRS. None of these items are deductible. Record these payments as owner draws. 
Tip: If you have employees and you are confused about how to record payroll taxes, your tax accountant can help straighten things out at the end of the year. Provide him or her with copies of your company’s quarterly and annual payroll tax returns and the W-2/W-3 package.

Sunrise and Lendio do not provide tax, legal, or accounting advice. This material has been prepared for informational purposes only and is not intended to provide and should not be relied on for tax, legal, or accounting advice. You should consult a tax, legal, and accounting advisers before engaging in any transaction.

    • Related Articles

    • Payroll and Gusto

      How It Works The Sunrise Payroll integration with Gusto is available for all users, free as well as paid. With Gusto, you can manage all your W2s, W9s, tax payments, benefits, etc.  You can then use the reporting in Sunrise to properly account for ...
    • How Sunrise estimates your taxes

      How Sunrise estimates your taxes Written by Success-Team Updated over a week ago Where do you find your quarterly tax payment amounts? Every year, when you file your tax returns, the IRS sends you quarterly tax estimates on half-page payment ...
    • The Ins and Outs of a Profit & Loss Statement (P&L)

      At Sunrise, our goal is to make accounting as simple as possible for business owners, so you spend more time doing what you love, and less time on bookkeeping. One way we do that is to provide a profit & loss statement when you link your Sunrise ...
    • Tax Assist Makes Business Taxes a Breeze

      Everyone could use a little help with tax prep. Luckily, we've got your back. Free Tax Assistance Yes, you heard that right. When you use your Free Lendio software, you receive Tax Assist tools for free. Help with preparing your taxes shouldn’t cost ...
    • Recording Check Payments

      Recording a check payment can be done in a few simple steps with Sunrise. Once your customer has paid you, you’ll want to record that payment. But how? We’ll take you through the steps of recording a check payment. Let’s get started!  Step 1: First, ...