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.

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