Re: [GNC] How to record Personal income tax ?

[markhafole via gnucash-user]

If you want to income tax so it means any balance tax paid by the assessee on
the assessed income after returns Tax Deducted at Source (TDS) and Advance
tax into account before filing the Return of income.  income tax
  is paid for a
specific financial year-end.



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Re: [GNC] How to record Personal income tax ?

[Finbar Mahon]

Strike me that a sub category to the entry for 'expenses taxes' would do 
the trick? Cumulated, it should be enough if you calculate based on 
previous years?


Personally, I dump money every so often into a savings a/c and take it 
back out to pay the robbers


Downside is that the rate of return is so bad it is hardly worth the effort.

On 20/03/2020 00:23, David Cousens wrote:

Long,
Most personal income tax in many jurisdictions is based on a concept of
taxable income - i.e income sources which are subject to tax  and specific
expenses ( usually on the basis that they are incurred in earning that
income) which are able to be deducted from that income to provide a nett
income which is assessed for tax payable. What income is taxable and what
deductions are allowable will depend upon your local taxation legislation
for which you will need professional advice.

To be able to track and make provision so you have the money available when
taxes are due you will need to partition your income,i.e. have separate sub
accounts  for income subject to taxation and income which is not. Similarly
with expenses you need to establish subaccounts for expense categories which
can be legitimately and legally deducted from your taxable income and those
which can't.  the difference between your income subject to tax and
deductible expense sub account totals will then give you an estimate of the
taxable income against which you will be assessed. How accurate this will be
will depend on how accurate your partitioning of income and expenses is and
what other processes may affect your tax paid ( often rebates and tax
offsets for specific purposes.

Accountants usually create specific liability account to identify future
expenses that may be accruing like taxation. You may also want to set aside
money in a separate bank account specifically to pay you taxes when they
come due or you may want to keep the money in your bank account and just be
aweare that you have sufficient funds available to cover the taxes when they
become due. If you want to do this on a regular basis, e.g. monthly, you
will have to use the taxable income for the previous month and calculate the
tax you will expect to pay on the taxable income for that month.
Transactions similar to the following will achieve that:
  Dr
Cr
Asset:Bank:Checking   xx
Asset:Bank:TaxProvision  xx
Liability:Provision for Income Tax  xx
Expense:Provision for Income Taxxx

where xx is the amount of tax you have calculated is due for that month. If
you do not want to keep the funds in a separate account just delete the
first two splits in the above transaction. The expense account would have to
fall under the non tax deductible sub-account.

At the end of the year when your tax is actually calculated and assessed you
would make adjustments to the liability  and expense accounts  (and also
transfer to or from a specific asset account if you are using it) to reflect
any differences from your estimates during the year and then clear the
liability when you actually pay your tax  (debit the liability by the amount
paid and credit either your check account or a specific asset  account you
have created for the tax provision).

This is just an outline of a general approach to deal with taxation accrual
as your income is accrued. It would have to be adjusted to suit your
specific circumstances and taxation legislation (and local accounting
practice) so consult your accountant for that. Details of how to calculate
the tax similarly depend on your specific tax laws.

David Cousens



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Re: [GNC] How to record Personal income tax ?

[David Cousens]

Long,

I think you are misunderstanding. Cash flow is a different concept from
making provision for liabilities which will arise in the future. Having done
the latter may however help  ensure that your cash flow in the future is
sufficient to meet your liabilities in the future. It is complicated further
because we don't initially know how much you know about accounting and what
it is you are really using GnuCash for.

Liabilities are not virtual accounts, they reflect real events which have
either occurred or will occur as a result of a current event.  In this case
the current event is the earning of income which creates a liability to pay
tax which you will have to pay at a future time. Your income is not earned
at one point of time but may be paid to you weekly, fortnightly, monthly
etc., so your liability to pay tax accrues as you pay income.  You do not
actually pay the tax at this time, just recognize in your accounts that you
will have to at the end of the year and estimate how much.

If your personal affairs are fairly simple you may have a good idea of how
much tax you will pay so recording the liability may not be necessary for
you. But if you are an investor with many complex transactions, knowing how
much you will owe when the taxman comes calling may be much more difficult
to estimate and the above recording may become a necessary evil. Only you
can decide what you need based on your circumstances. We can only advise you
on how you can do it and specifcally how you can do it with GnuCash not
whether you should or not.

There are a number of basic principles in accounting practice that underly
what is known as accrual accounting associated with recognition of income
when it is earned, matching expenses to income and the timing of events.
Another principle is prudence which translates as making sure you have the
cash available when it is needed. 

Cash accounting on the other hand only recognizes income when you receive it
and expenses when you pay them. You will need to decide which is more
appropriate for your purpose. Most legal jurisdictions will allow you to use
cash accounting for business purposes under a specified threshold of income
or turnover and it is generally sufficient for most personal accounting that
does not involve business transactions.  Many businesses are however
required to use accrual accounting.

The https://www.gnucash.org/docs/v3/C/gnucash-guide/index.html explains some
of this in a fairly condensed form. A textbook on Financial Accounting may
also help if you are not familiar with the terminology. As with most
professions accounting has very specific meanings for commonly used words
which may have a different meaning to their meaning in everyday use by the
public.

David



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Re: [GNC] How to record Personal income tax ?

[Adrien Monteleone]

Your answer demonstrates precisely why you need local professional advice. They 
can explain it for you based on your specific situation.

Regards,
Adrien

> On Mar 20, 2020 w12d80, at 2:27 AM, Long  wrote:
> 
> Hello,
> 
> Thank you so much for helping me, guys.
> I knew that, it's depend on my local. I just want to know cash flow for that
> problems in GnuCash.
> I had read some post after read your comment, and i see that, maybe i will
> not follow what you told me.
> You guys doing the same ways. Create the Liability, and Transfer that amount
> to Expense each month for taxable income. I think it's wrong, For example :
> 
> 1 - If you are parking car, you are not owe to the guard (Who will take your
> parking fee when you leave) = Your Revenue is only your, You not owe
> anything to government.
> 2 - When you leave that place, you need to pay the parking fee = When the
> year end, you need to pay personal income tax.
> 3 - You forgot your money to pay parking fee, NOW, you owe to the guard =
> You don't have enough money to pay tax, NOW, you owe to the government.
> 
> I'm always try to make GnuCash follow to my real life (This is what GnuCash
> does). So my decision is i will not create anything "virtual" in GnuCash.
> 
> i'm not going to spent 10% of my income to pay tax every month. i just don't
> want to spend that 10% of my income every month so that I will have 10% of
> my total income at the end of the year to pay personal income tax.
> 
> You can have read this post from GnuCash to have more details about this :
> - https://wiki.gnucash.org/wiki/Budget_Requirements
> From "But as discussed in previous sections . (or else it wont be
> accurate)."
> From "They aren't going to spent $100 every month  The extreme
> disadvantage of this is that reconciling becomes very difficult."


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Re: [GNC] How to record Personal income tax ?

[Michael or Penny Novack]

On 3/20/2020 3:27 AM, Long wrote:

Hello,

Thank you so much for helping me, guys.
I knew that, it's depend on my local. I just want to know cash flow for that
problems in GnuCash.
I had read some post after read your comment, and i see that, maybe i will
not follow what you told me.
You guys doing the same ways. Create the Liability, and Transfer that amount
to Expense each month for taxable income. I think it's wrong, For example :

Stop .. it is important to understand that "cash flow" and 
"income/expense" are different.


Yes, like in your parking lot example, if you didn't pay the attendant, 
you OWE (that's what a liability is). What is your goal? To KNOW what 
you owe the IRS (and will be paying in June or whenever) or to know you 
will have the cash on hand to make that payment.


And remember, we here are to explain HOW to enter in gnucash, not what 
accounts you should have and what to enter in each of them. It is not 
that some of us don't know the answers to that but we lack 
"qualifications" << I am not an accountant; I am a retired senior 
systems analyst, three decades doing software for one of the world's 
largest "financials", and treasurer of some 501(c)3's. So I may know the 
answers but not legal for me to do "accounting advice".


Michael D Novack


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Re: [GNC] How to record Personal income tax ?

[Long]

Hello,

Thank you so much for helping me, guys.
I knew that, it's depend on my local. I just want to know cash flow for that
problems in GnuCash.
I had read some post after read your comment, and i see that, maybe i will
not follow what you told me.
You guys doing the same ways. Create the Liability, and Transfer that amount
to Expense each month for taxable income. I think it's wrong, For example :

1 - If you are parking car, you are not owe to the guard (Who will take your
parking fee when you leave) = Your Revenue is only your, You not owe
anything to government.
2 - When you leave that place, you need to pay the parking fee = When the
year end, you need to pay personal income tax.
3 - You forgot your money to pay parking fee, NOW, you owe to the guard =
You don't have enough money to pay tax, NOW, you owe to the government.

I'm always try to make GnuCash follow to my real life (This is what GnuCash
does). So my decision is i will not create anything "virtual" in GnuCash.

i'm not going to spent 10% of my income to pay tax every month. i just don't
want to spend that 10% of my income every month so that I will have 10% of
my total income at the end of the year to pay personal income tax.
 
You can have read this post from GnuCash to have more details about this :
- https://wiki.gnucash.org/wiki/Budget_Requirements
>From "But as discussed in previous sections . (or else it wont be
accurate)."
>From "They aren't going to spent $100 every month  The extreme
disadvantage of this is that reconciling becomes very difficult."

Regards.



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Re: [GNC] How to record Personal income tax ?

[David Cousens]

Long,

Most personal income tax in many jurisdictions is based on a concept of
taxable income - i.e income sources which are subject to tax  and specific
expenses ( usually on the basis that they are incurred in earning that
income) which are able to be deducted from that income to provide a nett
income which is assessed for tax payable. What income is taxable and what
deductions are allowable will depend upon your local taxation legislation
for which you will need professional advice.

To be able to track and make provision so you have the money available when
taxes are due you will need to partition your income,i.e. have separate sub
accounts  for income subject to taxation and income which is not. Similarly
with expenses you need to establish subaccounts for expense categories which
can be legitimately and legally deducted from your taxable income and those
which can't.  the difference between your income subject to tax and
deductible expense sub account totals will then give you an estimate of the
taxable income against which you will be assessed. How accurate this will be
will depend on how accurate your partitioning of income and expenses is and
what other processes may affect your tax paid ( often rebates and tax
offsets for specific purposes.

Accountants usually create specific liability account to identify future
expenses that may be accruing like taxation. You may also want to set aside
money in a separate bank account specifically to pay you taxes when they
come due or you may want to keep the money in your bank account and just be
aweare that you have sufficient funds available to cover the taxes when they
become due. If you want to do this on a regular basis, e.g. monthly, you
will have to use the taxable income for the previous month and calculate the
tax you will expect to pay on the taxable income for that month. 
Transactions similar to the following will achieve that:
 Dr
Cr
Asset:Bank:Checking   xx
Asset:Bank:TaxProvision  xx
Liability:Provision for Income Tax  xx
Expense:Provision for Income Taxxx

where xx is the amount of tax you have calculated is due for that month. If
you do not want to keep the funds in a separate account just delete the
first two splits in the above transaction. The expense account would have to
fall under the non tax deductible sub-account.

At the end of the year when your tax is actually calculated and assessed you
would make adjustments to the liability  and expense accounts  (and also
transfer to or from a specific asset account if you are using it) to reflect
any differences from your estimates during the year and then clear the
liability when you actually pay your tax  (debit the liability by the amount
paid and credit either your check account or a specific asset  account you
have created for the tax provision). 

This is just an outline of a general approach to deal with taxation accrual
as your income is accrued. It would have to be adjusted to suit your
specific circumstances and taxation legislation (and local accounting
practice) so consult your accountant for that. Details of how to calculate
the tax similarly depend on your specific tax laws.

David Cousens



-
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Re: [GNC] How to record Personal income tax ?

[Michael or Penny Novack]

On 3/19/2020 5:07 PM, Long wrote:

Hello,

So, Forget my question, Think in easier ways. What should i do in gnucash?
when from January to June, my income is 3000 each month, and i will pay 1800
at june. (It's mean 10% of my total income: 18.000).
I want to know that, my income is 3000$, and there is 300$ i need to hold
EACH MONTH to pay at june.
That behaviour like i did when i pay tax.

Thank in advance for help me.
Regards.



With the warning that I am NOT "qualified" to give this advice.

I will describe in terms of debits and credits.

a) You create an account under Liabilities "income tax owed" and one 
under expenses "estimated income tax"


b) So each month when that $3000 comes in you debit "cash" $3000, credit 
"income" $3000, debit "estimated income tax" $300 and credit "income tax 
owed" $300   < you are recording the 20% > You will also want an expense 
account for the ACTUAL amount eventually sent in. We'll discuss that later.


c) So in June, if you send in to the IRS that expected amount of $1800 
it is simple. You debit the liability $1800 and credit cash the same 
amount, and transfer that amount from estimated to actual. That's easy 
BUT might not be what happens. You might actually pay a different 
amount. In that case an adjusting transaction debiting the liability and 
crediting "estimated" for the amount your accountant/tax advisor told 
you you didn't have to pay.


Note that NONE of this is a "how to do in gnucash" question but a "what 
should I be doing" question independent of whether or not you were using 
gnucash. You either have to learn basic accounting or have a 
professional tell you what to do, using gnucash does not change that.


Michael D Novack


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Re: [GNC] How to record Personal income tax ?

[Long]

Hello,

I thought my last question is about how i write that into gnucash with
informed that i can't use over 2700, because there is 300$ to pay tax. 
I thought, i need to do in gnucash like this:
Credit from income to asset: 3000 each month
And then i will see my assets increase 3000
When i pay tax, i will credit my assets to expense:tax
But, Before i pay tax, i need to know that i can't use 300&, if i use it, i
will have trouble.

I don't think my question is about accounting, or i misunderstanding
something?
Just like savings, I'm going to save my money to travel, in real life, i
don't transfer my money to anywhere, it's still inside my bank. So i keeping
that money in my bank in gnucash, don't create any virtual account for that.
I just create a spreadsheet and write every $ i saved for travel, and watch
it every day to make sure i don't spend that money. Did i wrong about this
solutions? If i don't, should i do the same for tax? 
Generally, i just want to have something (gnucash or anything else) to alert
me, what i can or can't do.



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Re: [GNC] How to record Personal income tax ?

[Adrien Monteleone]

I understood the question originally.

Once again, though, this is an accounting advice question, particularly 
relating to taxes. It doesn’t matter if you are using GnuCash or pen and paper, 
the transactions would be the same.

You need official advice on what the transactions should be for your 
jurisdiction, then if you need help entering them in GnuCash, we can help.

Regards,
Adrien

> On Mar 19, 2020 w12d79, at 4:07 PM, Long  wrote:
> 
> Hello,
> 
> So, Forget my question, Think in easier ways. What should i do in gnucash?
> when from January to June, my income is 3000 each month, and i will pay 1800
> at june. (It's mean 10% of my total income: 18.000).
> I want to know that, my income is 3000$, and there is 300$ i need to hold
> EACH MONTH to pay at june.
> That behaviour like i did when i pay tax.
> 
> Thank in advance for help me.
> Regards.


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Re: [GNC] How to record Personal income tax ?

[Long]

Hello,

So, Forget my question, Think in easier ways. What should i do in gnucash?
when from January to June, my income is 3000 each month, and i will pay 1800
at june. (It's mean 10% of my total income: 18.000).
I want to know that, my income is 3000$, and there is 300$ i need to hold
EACH MONTH to pay at june.
That behaviour like i did when i pay tax.

Thank in advance for help me.
Regards.



--
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Re: [GNC] How to record Personal income tax ?

[Adrien Monteleone]

This depends on if you are receiving a payment from some other entity, or you 
are paying yourself from your own business and keeping one set of books. (a 
passthru business, such as sole proprietorship)

You REALLY need to speak to a local CPA for guidance on the proper entries to 
make. They are the only ones who can advise you on how to record this properly.

Anyone else would be just speculating or giving you examples for *their* 
jurisdiction, not necessarily for yours.

Regards,
Adrien

> On Mar 19, 2020 w12d79, at 9:32 AM, Long  wrote:
> 
> Thank you so much for your help,
> 
> I had read the capital gains and it's maybe hard to understand for me.
> I just want to make a report for me, not for government. I just want to know
> how much money i spent for tax. So for now, it's only transaction report?
> 
> And i assume that i need to pay tax, one time every six month. What should i
> do in gnucash ? 
> Income : 3000/month
> Income after 6 month is : 18.000
> Tax = 20%
> => i need to pay tax : 3.600
> 
> Regards.

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Re: [GNC] How to record Personal income tax ?

[Eric H. Bowen via gnucash-user]

Disclaimer: I Am Not An Accountant. But this is what works for me:

At the end of the year, from my last pay stub and/or W-2 form, I take 
all of the deductions from my paycheck and post them in my Income:Salary 
account directed to the various categories (i.e., Expenses:Medical for 
health insurance deductions, Expenses:Insurance for additional life 
insurance premiums, Expenses:Taxes:Federal for income tax deducted and 
Expenses:Taxes:FICA, :Medicare, etc. for the appropriate amounts. I date 
these transactions as of December 31st. Yes, you could do it throughout 
the year pay stub by pay stub, but...why?


Then I close my books for the year and figure my taxes. If I have any 
additional tax liability it goes on the books in the year in which I pay 
it...2020, for the 2019 taxes which I just completed filing. But, if I 
receive a refund (and I did), I post it as a debit to the 
Expenses:Taxes:Federal account and a credit to the Assets:Savings 
account (or wherever it was paid to) again, in the year in which I 
receive it.


As always, Your Mileage May Vary. But this seems to work for meEric.

On 3/19/20 10:03 AM, gnucash-user-requ...@gnucash.org wrote:


--

Message: 9
Date: Thu, 19 Mar 2020 09:32:04 -0500 (CDT)
From: Long 
To: gnucash-user@gnucash.org
Subject: Re: [GNC] How to record Personal income tax ?
Message-ID: <1584628324913-0.p...@n4.nabble.com>
Content-Type: text/plain; charset=us-ascii

Thank you so much for your help,

I had read the capital gains and it's maybe hard to understand for me.
I just want to make a report for me, not for government. I just want to know
how much money i spent for tax. So for now, it's only transaction report?

And i assume that i need to pay tax, one time every six month. What should i
do in gnucash ?
Income : 3000/month
Income after 6 month is : 18.000
Tax = 20%
=> i need to pay tax : 3.600

Regards.


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Re: [GNC] How to record Personal income tax ?

[Long]

Thank you so much for your help,

I had read the capital gains and it's maybe hard to understand for me.
I just want to make a report for me, not for government. I just want to know
how much money i spent for tax. So for now, it's only transaction report?

And i assume that i need to pay tax, one time every six month. What should i
do in gnucash ? 
Income : 3000/month
Income after 6 month is : 18.000
Tax = 20%
=> i need to pay tax : 3.600

Regards.



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Re: [GNC] How to record Personal income tax ?

[Adrien Monteleone]

The specifics would depend on requirements in your local jurisdiction, but the 
basics of recording a paycheck would be a transaction like the following:

Dr. Assets:Cash/Checking/etc.   2400
Dr. Expenses:Taxes:Income600
Cr. Income:Salary/Wages/etc.3000

If this is a different type of transaction like Capital Gains, the entry will 
be different as the tax may not be paid at the same time. The Tutorial and 
Concepts Guide covers how to record Capital Gains transactions.

Note, many basic transaction forms can be found in online accounting resources 
and texts. Whatever you are supposed to use for pen and paper, you can use in 
GnuCash.

As always, the caveat applies that this is *not* either accounting or tax 
advice. Always speak to a local CPA for professional and official guidance.

Concerning reports, there is a built-in Tax Report but my understanding is it 
is only designed for the US at this time, though I’ve seen discussion to add 
other jurisdictions. Until then, perhaps a Transaction Report would be the best 
tool. Depending on your accounting basis (cash vs. accrual) and your filing 
requirements, you might instead use an Income Statement (a.k.a. Profit & Loss 
report). Again, official CPA advice would tell you what info you need in the 
report, and likely even suggest a standard accounting report such as this.

Regards,
Adrien


> On Mar 19, 2020 w12d79, at 8:42 AM, Long  wrote:
> 
> Hello,
> 
> I assume that my income for each month is 3000$, and my personal income tax
> about 20% of my total revenue.
> 
> So, How can i record that in gnucash?? And when i need a report, i just use
> transaction report?
> 
> Thank in advance for your help.
> Regards.

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[GNC] How to record Personal income tax ?

[Long]

Hello,

I assume that my income for each month is 3000$, and my personal income tax
about 20% of my total revenue.

So, How can i record that in gnucash?? And when i need a report, i just use
transaction report?

Thank in advance for your help.
Regards.



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