These are the taxes that are paid on your wages or income of the business. Income taxes are filed yearly. For most of our clients, they file taxes in April for the previous fiscal year. If you clients file extensions for their income taxes, they are due either 9/15/xx or 10/15/xx depending on what type of business they are (there is a 6 month extension if the client requests one from the IRS).
Federal - How you can differentiate this from other types of taxes paid to the IRS, look at the memo of the check. If it has a SSN (123-45-6789) listed, its Income Taxes. If it has and EIN (12-3456789), its payroll taxes. For most of our clients, all federal income tax payments are categorized as a personal expense and need to be coded in their appropriate draw account.
State - also coded as personal.
City - most clients city would be coded as Taxes - Business as this is a legit write-off.
Withholding taxes are collected from employees payroll checks. They are held on by employer until they are due.
The types of taxes are:
Federal: income tax, social security, medicare and federal unemployment.
When payments hit the bank, the can be label Internal Revenue Service or Department of Treasury.
How you can differentiate this from other types of taxes paid to the IRS, look at the memo of the check. If it has a SSN (xxx-xx-xxxx) listed, its Income Taxes. If it has and EIN (xx-xxxxxxx), its payroll taxes.
Payroll forms for reference 941 and 940.
school district income tax,
unemployment (you also might see Department of Job and Family),
BWC (Bureau of workman’s comp) and
special taxes such as Franchise taxes like in Texas and Commercial Activity Tax (CAT Tax) like in Ohio.
City: income tax
Sales tax that is collected on the sale of goods (and some services). Depending on what your client sells, they are to charge the customers sales tax on all sales within their home state. They hold on to the sales tax collected in a liability account until they are required to pay to their state.
To register with the state, they must apply for a vendors license. At that time, they are assigned a paying frequency.
When they pay their sales tax on time, most states will let them keep a small portion of it and we code that part into an other income account called Early pay discount.
If you ever have a question about anything that hits your clients account in regards to sales tax OR your client has a question about sales tax, please refer them to the Sales Tax team. :)