Dennis Munro
06-22-2003, 03:44 PM
I don't know about the US, but in Canada an income tax refund is just money.
From a business perspective it is neither income or an expense. If you are
recording just for personal reasons; ie meals, gifts, movies an such, then
it would be income. But it is definitely not taxable income. It is no
different than if uncle Fred gave you $100 on your birthday.
--
Dennis
"Dick Weaver" <rweaver@ix.netcom.com> wrote in message
news:3EF556ED.8B222483@ix.netcom.com... Fj wrote: A question for those who might know. I just found this newsgroup when I
was thinking of upgrading to Quicken XG, and decided not to. Anyway, here is
my question; What category should I place my income tax refund under? It
really isn't income, since it was my money to begin with, and it definitely is
not an expense. In the past I've just been lazy and put it under income, but should do it differently? Thanks to all in advance. It definitely is an expense. Think of buying a can of beans for $1 and then returning that can to the store for a $1 refund. What is your total expense? $1 - $1 = $0. Same thing for taxes. Still bothered? Try this. Suppose you owe $10 and pay $10. You record a $10 expense. Now suppose when you owed that $10 you paid $11 and then got a $1 refund. You are in the identical financial position in both cases, $10 expense (interest paid on a refund IS income). Federal refunds are simple. State refunds, if you itemize deductions, are more interesting. Time for my annual post - even if lazy you should skim it to see if anything gets your attention. dick w
****************************************************************************
** Using Quicken for Federal and State Income Tax Payments and Refunds version 03.6.21, dick w, rweaver@ix.netcom.com This text describes only how to record some tax payments and refunds in your Quicken registers; it is not a description of tax requirements. The authoritive source for tax requirements is the IRS. ---------------------------------------------------------------------- State and federal income tax payments/refunds are commonly made during the tax year (withholding, estimated payments) and during the following year (4th estimated payment, annual filing payment/refund). Amended returns and audits can result in additional payments/refunds in later years. State income tax payments/refunds made in the following or a later year should be recorded both for the state tax year (state filings) and for the year the payment/refund was actually made (federal filings). Thus some state income tax payment/refund entries have two tax years associated with them. Examples are: the 4th estimated state income tax payment for 2000, made Jan 15 2001, must be included in totals used for the 2000 state income tax filing due 4/15/01 and may be included in totals (as an itemized deduction) for the 2001 federal filing due 4/15/02. a state refund for 2000, received 6/3/01 following the normal 4/15/01 filing, must be included in any state audit or amended state filing for 2000 and in calculations for the 2001 federal filing due 4/15/2002. Federal income tax payments/refunds made in a following or later year must, if you want accurate totals for amended returns or audits, identify the tax year. Two methods are described for recording income tax payments/refunds when two different years are to be identified. Transaction date method Use the Quicken transaction date for tax year. Record the actual transaction date in the memo field for an audit trail. For state income tax entries that require two years, make two (well, really three) entries - an entry for each year and an offset entry. Class method For state income tax payment/refund entries use the transaction date for the federal tax year and class for the state tax year. For federal income tax payment/refunds entries use class for the tax year. (this keeps the transaction date as the date you wrote the check, but increases reporting complexity as some categories would have state year as a class while others would have federal year as a class). And there are variations: use class for all income tax payments as above, use class only when the transaction date and the tax year are different, use transaction date for federal and class for state, ... Using transaction date method and making two Quicken entries for a transaction requires a third "offset" Quicken entry so as to not actually double the payment/refund amount in Quicken totals. The advantage of using transaction date is that a calendar year report of category totals provides a complete summary of the year, including all of the Quicken input for tax preparation. As the majority of tax related entries are made within the tax year and only a few in later years (indeed only two such entries, a single payment/refund each, federal and state, is the common case) making three entries each for those few may be less work than entering a class on tax entries and having to use multiple reports for tax reporting. Using the tax year as a class requires only a single Quicken entry for a transaction, but may require reports by calendar year and by class for a complete summary of tax transactions for a year (which may affect your ability to link Quicken totals to tax preparation products). When determining which entries will use class, you are also determining the reports that will be required for tax filings. The advantage of using class is simpler entry for those tax transactions where two years are to be identified. I use the transaction method; it meets my requirement that a single report for a specific year provides all, state and federal, tax detail. Regardless of which method you use, correct results are not automatic; you must understand the chosen method to get correct results. In addition to what is required by either method, you should (must) determine what you require to verify that tax data on your Quicken reports is correct. Left as an exercise for the reader: use of split transactions, when to mark entries as reconciled, and effect of chosen method on networth reporting. Using TurboTax. I am not a TurboTax user. My understanding is that TurboTax: for a specified calendar year imports Quicken data for categories tagged as "tax", can use the tax form line you assigned in Quicken, and allows reassignment of tax form line. From that understanding, it seems to me that only the transaction method (where the transaction date year is the tax year) supports TurboTax. ---------- A comment on state and local refunds for income tax paid in a prior year. Read the description of line 10 in your 1040 form. Read all of the exceptions. This text assumes the common case, using the line 10 worksheet. If you itemized federal deductions for that calendar year, then use the federal 1040 line 10 worksheet to see if any of the refund is taxable (do NOT enter the refund directly on line 10). Receiving a state income tax refund that actually makes its way through the worksheet and onto 1040 line 10 usually means a mistake (a financial mistake, not a mathematical mistake). Line 10 increases the AGI, which decreases the allowed amounts of some itemized deductions and can increase (at some income levels almost dollar for dollar) the amount of Social Security benefits that are taxable. In the worst case, an overpayment of state income taxes that "saves" $100 of federal taxes one year can cost almost $200 in federal taxes the following year. I wouldn't overpay state income taxes unless I had a good reason for doing so and I understood the effects on the following years federal income taxes. And using state income tax overpayments to shift tax liabilities between years is not a good reason according to the IRS -- there must have been reasonable expectations of that tax actually being due when the payment was made. If you have overpaid state income taxes, there is an out - on your federal return Schedule A claim the state income taxes paid LESS the state refund (pay your state taxes first or do an accurate calculaton). Thus the state refund is not for monies claimed as a deduction and does not go on line 10. You can file amended returns for additional deductions; a safe approach if the size of the state refund is unknown and will not be processed before your federal return is due, is to claim little (or no) state tax deduction and then file an amended federal return when state returns have been processed. Examples in this text all assume the full state payment was claimed on the federal return. ---------- A comment on "grouping" deductions To increase your Schedule A itemized deductions, you may group as many deductions as possible into alternate years, or every third year, and take the standard deduction in the intervening years (this strategy is not universally rewarding, but you should be aware of the possibility). You group deductions by paying them in one year. For example, instead of donating $1000 to your church every year, you donate $2000 every other year - you have grouped two years deductions. For example, assume that you itemize $8000 in deductions each year and that the standard deduction is $7000. So every two years your total deductions are 2 x 8000 = 16000. Now move $2000 of deductions from one year to the other: one year's deduction changes 8000+2000 = 10000, the other year's deduction changes 8000-2000 = 7000. Shouldn't that be 6000? No, for that year you now take the standard deduction! Your two years deduction total is 10000+7000 = 17000; you have gained $1000 in deductions. Similar logic applies if your itemized deductions are less than the standard deduction and you are able to group enough deductions into one year to exceed the standard deduction for that year. Deductions that might be easily grouped include charitable, some state income taxes (estimated tax payments, for example), some medical expense (it's the year paid, not the service year, that determines tax year) and property taxes (if a fee is charged for a late payment and you save more than that fee on taxes - its still a good deal). --------------------------------------------------------------------- Federal Categories: The federal categories are the same, whether you use the tax year for the transaction date or use a class for the tax year. Category & Transfer List Category Type Tax Description Fed Form Taxes Expns Tax Taxes: Fed & State fed-est-payment Sub Tax fed estimated payment 1040 L58 fed-payorrefund Sub Tax fed payment or refund 1040 L65/68 fed-withhold Sub Tax fed withhold 1040 L57 EACH EXAMPLE BELOW IS SHOWN FIRST USING TRANSACTION DATE, SECOND USING CLASS. Example 1: A federal income tax refund of $100 with $5 interest (total check $105) received 5/23/01 for 2000 would be entered as: date category amount memo 12/31/00 fed-payorrefund 100 5/23/01 5/23/01 interest-income 5 with fed refund, tot $105 5/23/01 (split entries) 105 fed refund fed-payorrefund/2000 100 interest-income 5 Example 2: The last estimated payment for 2000, made 1/15/01, would be: 12/31/00 fed-est-payment -100 1/15/01 4th 2000 est pay 1/15/01 fed-est-payment/2000 -100 4th 2000 est pay Example 3: You indicate that $20 of your $50 2000 federal refund is to be applied to the 1st 2001 estimated payment. 12/31/00 fed-payorrefund 50 4/15/01 $20 applied to 1st est pay 4/15/01 fed-est-payment -20 2000 refund applied 4/15/01 fed-payorrefund/2000 50 4/15/01 $20 applied to 1st est pay 4/15/01 fed-est-payment/2001 -20 2000 refund applied --------------------------------------------------------------------- State categories when using transaction date for state income tax payments/refunds are: Category & Transfer List Category Type Tax Description Fed Form Taxes Expns Tax Taxes: Fed & State state-estpay-S Sub Tax state estimate payment S state-estpay-SF Sub Tax state estimate payment SF SchA state-payrfn-S Sub Tax state pay|refund S state-offset Sub state pay|refund offset state-PrY-payrfn-F Sub Tax state prior yr pay|rfn F SchA state-PrY-rfn10-F Sub Tax state prior yr refund F 1040 W10 state-withhd-SF Sub Tax state withhold SF SchA State categories when using class for state tax payments/refunds are: Taxes Expns Tax Taxes: Fed & State state-estpay/class Sub Tax state estimate payment SchA state-payrfn/class Sub Tax state payment or refund SchA state-refund10/class Sub Tax state refund 1040 W10 state-withhd Sub Tax state withhold SchA where: F is item to be reported on federal return (transaction method) S is item to be reported on state return (transaction method) SchA is Schedule A State and Local income taxes 1040 W10 is 1040 State and Local Income Tax Refund Worksheet-Line 10 (the common case, there are other possibilities - see the line 10 description in your 1040 form) "10" is used in category names to remind us which are line 10 worksheet; the rest are Sch A or state only. and note - "state-offset" is NOT flagged as tax-related. - "state-withhd" does not require two different years and can be recorded using a class, or not (but you should be consistent). TurboTax: When using the transaction method: For federal tax reporting, include "F" and "SF" categories, and for state tax reporting include "S" and "SF" categories. Note, again, that the category "state-PrY-rfn10-F" is for the line 10 worksheet; not line 10 directly. When using the class method you are on your own (I suspect using class for tax year is not compatible with using TurboTax). EACH EXAMPLE BELOW IS SHOWN FIRST USING TRANSACTION DATE, SECOND USING CLASS. Example 4: Monthly withholding with a balance due on state filing. The withholding entries would usually be splits on your salary deposits. date category amount memo 1/31/00 state-withhd-SF -100 2/31/00 state-withhd-SF -100 ... 12/31/00 state-withhd-SF -100 1/31/00 state-withhd -100 2/31/00 state-withhd -100 ... 12/31/00 state-withhd -100 When filing the 2000 state return another $50 is due, we write the check 4/15/01 and record it with the following entries: 12/31/00 state-payrfn-S -50 paid 4/15/01, 2000 state filing 4/15/01 state-PrY-payref-F -50 2001 federal deduction 4/15/01 state-offset 50 4/15/01 state-payrfn/2000 -50 2000 state filing Why three entries when using transaction date? Either there is one entry, -SF, when the amount is reported on state and federal forms for the same year, or there are three entries, -S, -F, and offset, when the amount is reported for different years on state and federal forms. The first entry (-S) is for state 2000 totals. The second entry (-F) is for the 2001 federal deduction. And, since we have recorded a $50 payment twice, the third entry offsets (reverses) one of those entries without affecting tax reporting. You can offset either entry (that is, use either transaction date); its only a question, for Quicken reports, of which year you want the expense included in. I prefer the expense year to be the tax year (2000) rather than the payment year (2001); arguments can be made for either. Example 5. When filing, a refund of $40 is due us. There are two common cases for state or local income tax refunds (see the line 10 description in your 1040 form; be sure to read all of the exceptions listed there for other cases NOT covered in this text): case 1. The refund is for state or local income taxes paid in one prior calendar year. case 2. The refund is for state or local income taxes paid in two or more calendar years. Examples of payments in two or more years are withholding or estimated payments during the year followed by any of: the 4th estimated payment made in January of the following year, a payment made when filing a state return in the following year, an assessment of additional tax in some later year. Receive a refund after any of these and case 2 would seem to apply. As described in Pub 525 "Taxable and Nontaxable Income", Section "Recoveries", heading "Recovery for 2 or more years": ... you must allocate, on a pro rata basis, the recovered amount between the years in which it [the total tax] was paid. For amounts allocated to prior years, use the line 10 worksheet for each year to determine taxable amounts, then report any taxable amounts on line 10 of the year the refund is received. For any amount allocated to the current year, reduce the state or local income tax deduction for the current year by that amount. Example 5 case 1. The refund was for income taxes paid in 2000. The entries are: 12/31/00 state-payrfn-S 40 received 6/5/01 6/05/01 state-PrY-rfn10-F 40 2000 refund - Line 10 worksheet 6/05/01 state-offset -40 2000 refund 6/05/01 state-refund10/2000 40 2000 refund - Line 10 worksheet Example 5 case 2. Four estimated payments, each $1000, were made. 3 in 2000, the 4th in January 2001. There were no other payments (no withholding). 3/4 of the refund is allocated to 2000, 1/4 to 2001 (a copy of this allocation computation must be attached to the tax return). The entries are: 12/31/00 state-payrfn-S 40 received 6/5/01 6/05/01 state-PrY-rfn10-F 30 2000 refund - Line 10 worksheet 6/05/01 state-PrY-payrfn-F 10 2000 refund - Sch A deduction red. 6/05/01 state-offset -40 2000 refund 6/05/01 state-refund10/2000 30 2000 refund - Line 10 worksheet 6/05/01 state-payrfn/2000 10 2000 refund - Sch A deduction red. Example 6. When filing, a refund of $40 is due us and we check "apply refund to next year's (2001) 1st estimated tax payment". Add the following lines to the Example 5 cases. 4/15/01 state-estpay-SF -40 1st estimated pay, 2000 rfnd 4/15/01 state-estpay/2001 -40 1st estimated pay, 2000 rfnd The resulting entries (example 5 plus example 6) total zero. I enter an unnumbered check in the checking account, total $0 with splits. Example 7. Retired, we make four estimated state tax payments for a year, three during that year and the last one on 1/15 of the following year. 4/15/00 state-estpay-SF -300 1st estimated pay 6/15/00 state-estpay-SF -300 2nd estimated pay 9/15/00 state-estpay-SF -300 3rd estimated pay 12/31/00 state-estpay-S -300 1/15/01 4th est pay 1/15/01 state-PrY-payref-F -300 4th 2000 state estimated payment 1/15/01 state-offset 300 4th 2000 state estimated payment 4/15/00 state-estpay/2000 -300 1st estimated pay 6/15/00 state-estpay/2000 -300 2nd estimated pay 9/15/00 state-estpay/2000 -300 3rd estimated pay 1/15/01 state-estpay/2000 -300 4th 2000 state estimated payment Example 8: Assuming that 2000 was a "grouping" year, the 4th estimated payment of example 3 would have been made the last day of 2000 that the Post Office was open (it's the postmark date that counts - even though you have no record of it unless requested (certified,...)), thus moving the federal deduction from 2001 to 2000, and entered as 12/31/00 state-estpay-SF -300 12/31/00 state-estpay/2000 -300 We would also have mailed the full 2001 state estimated tax on the last Post Office open date of 2000. Thus recording the federal deduction in 2000 (grouping 2001 state estimated tax payment with the other 2000 federal deductions), while the state would receive the payment in early 2001 (the year it's due - just a little early in the year). The entries would be 12/31/00 state-PrY-payref-F -1200 all of 2001 state estimated payment 12/31/00 state-offset 1200 1/ 1/01 state-estpay-S -1200 all of 2001 state estimated payment 12/31/00 state-estpay/2001 -1200 all of 2001 state estimated payment A minor amusement - the "state-PrY-payref-F" category is being used for a future year. I should have named it "different year". Example 9. The state, out of the goodness of their heart, sends us a refund, in 2001, for the year 1997. All income tax payments for 1997 were made in 1997, so there is no allocation. The check is for $75, a $60 tax refund and $15 interest. The entries are: 12/31/97 state-payrfn-S 60 8/13/01 tax refund 8/13/01 state-PrY-rfn10-F 60 1997 tax refund - line 10 worksheet 8/13/01 state-offset -60 1997 tax refund 8/13/01 interest-income 15 1997 tax refund interest 8/13/01 state-refund10/1997 60 1997 tax refund - line 10 worksheet 8/13/01 interest-income 15 1997 tax refund interest --- end ---
From a business perspective it is neither income or an expense. If you are
recording just for personal reasons; ie meals, gifts, movies an such, then
it would be income. But it is definitely not taxable income. It is no
different than if uncle Fred gave you $100 on your birthday.
--
Dennis
"Dick Weaver" <rweaver@ix.netcom.com> wrote in message
news:3EF556ED.8B222483@ix.netcom.com... Fj wrote: A question for those who might know. I just found this newsgroup when I
was thinking of upgrading to Quicken XG, and decided not to. Anyway, here is
my question; What category should I place my income tax refund under? It
really isn't income, since it was my money to begin with, and it definitely is
not an expense. In the past I've just been lazy and put it under income, but should do it differently? Thanks to all in advance. It definitely is an expense. Think of buying a can of beans for $1 and then returning that can to the store for a $1 refund. What is your total expense? $1 - $1 = $0. Same thing for taxes. Still bothered? Try this. Suppose you owe $10 and pay $10. You record a $10 expense. Now suppose when you owed that $10 you paid $11 and then got a $1 refund. You are in the identical financial position in both cases, $10 expense (interest paid on a refund IS income). Federal refunds are simple. State refunds, if you itemize deductions, are more interesting. Time for my annual post - even if lazy you should skim it to see if anything gets your attention. dick w
****************************************************************************
** Using Quicken for Federal and State Income Tax Payments and Refunds version 03.6.21, dick w, rweaver@ix.netcom.com This text describes only how to record some tax payments and refunds in your Quicken registers; it is not a description of tax requirements. The authoritive source for tax requirements is the IRS. ---------------------------------------------------------------------- State and federal income tax payments/refunds are commonly made during the tax year (withholding, estimated payments) and during the following year (4th estimated payment, annual filing payment/refund). Amended returns and audits can result in additional payments/refunds in later years. State income tax payments/refunds made in the following or a later year should be recorded both for the state tax year (state filings) and for the year the payment/refund was actually made (federal filings). Thus some state income tax payment/refund entries have two tax years associated with them. Examples are: the 4th estimated state income tax payment for 2000, made Jan 15 2001, must be included in totals used for the 2000 state income tax filing due 4/15/01 and may be included in totals (as an itemized deduction) for the 2001 federal filing due 4/15/02. a state refund for 2000, received 6/3/01 following the normal 4/15/01 filing, must be included in any state audit or amended state filing for 2000 and in calculations for the 2001 federal filing due 4/15/2002. Federal income tax payments/refunds made in a following or later year must, if you want accurate totals for amended returns or audits, identify the tax year. Two methods are described for recording income tax payments/refunds when two different years are to be identified. Transaction date method Use the Quicken transaction date for tax year. Record the actual transaction date in the memo field for an audit trail. For state income tax entries that require two years, make two (well, really three) entries - an entry for each year and an offset entry. Class method For state income tax payment/refund entries use the transaction date for the federal tax year and class for the state tax year. For federal income tax payment/refunds entries use class for the tax year. (this keeps the transaction date as the date you wrote the check, but increases reporting complexity as some categories would have state year as a class while others would have federal year as a class). And there are variations: use class for all income tax payments as above, use class only when the transaction date and the tax year are different, use transaction date for federal and class for state, ... Using transaction date method and making two Quicken entries for a transaction requires a third "offset" Quicken entry so as to not actually double the payment/refund amount in Quicken totals. The advantage of using transaction date is that a calendar year report of category totals provides a complete summary of the year, including all of the Quicken input for tax preparation. As the majority of tax related entries are made within the tax year and only a few in later years (indeed only two such entries, a single payment/refund each, federal and state, is the common case) making three entries each for those few may be less work than entering a class on tax entries and having to use multiple reports for tax reporting. Using the tax year as a class requires only a single Quicken entry for a transaction, but may require reports by calendar year and by class for a complete summary of tax transactions for a year (which may affect your ability to link Quicken totals to tax preparation products). When determining which entries will use class, you are also determining the reports that will be required for tax filings. The advantage of using class is simpler entry for those tax transactions where two years are to be identified. I use the transaction method; it meets my requirement that a single report for a specific year provides all, state and federal, tax detail. Regardless of which method you use, correct results are not automatic; you must understand the chosen method to get correct results. In addition to what is required by either method, you should (must) determine what you require to verify that tax data on your Quicken reports is correct. Left as an exercise for the reader: use of split transactions, when to mark entries as reconciled, and effect of chosen method on networth reporting. Using TurboTax. I am not a TurboTax user. My understanding is that TurboTax: for a specified calendar year imports Quicken data for categories tagged as "tax", can use the tax form line you assigned in Quicken, and allows reassignment of tax form line. From that understanding, it seems to me that only the transaction method (where the transaction date year is the tax year) supports TurboTax. ---------- A comment on state and local refunds for income tax paid in a prior year. Read the description of line 10 in your 1040 form. Read all of the exceptions. This text assumes the common case, using the line 10 worksheet. If you itemized federal deductions for that calendar year, then use the federal 1040 line 10 worksheet to see if any of the refund is taxable (do NOT enter the refund directly on line 10). Receiving a state income tax refund that actually makes its way through the worksheet and onto 1040 line 10 usually means a mistake (a financial mistake, not a mathematical mistake). Line 10 increases the AGI, which decreases the allowed amounts of some itemized deductions and can increase (at some income levels almost dollar for dollar) the amount of Social Security benefits that are taxable. In the worst case, an overpayment of state income taxes that "saves" $100 of federal taxes one year can cost almost $200 in federal taxes the following year. I wouldn't overpay state income taxes unless I had a good reason for doing so and I understood the effects on the following years federal income taxes. And using state income tax overpayments to shift tax liabilities between years is not a good reason according to the IRS -- there must have been reasonable expectations of that tax actually being due when the payment was made. If you have overpaid state income taxes, there is an out - on your federal return Schedule A claim the state income taxes paid LESS the state refund (pay your state taxes first or do an accurate calculaton). Thus the state refund is not for monies claimed as a deduction and does not go on line 10. You can file amended returns for additional deductions; a safe approach if the size of the state refund is unknown and will not be processed before your federal return is due, is to claim little (or no) state tax deduction and then file an amended federal return when state returns have been processed. Examples in this text all assume the full state payment was claimed on the federal return. ---------- A comment on "grouping" deductions To increase your Schedule A itemized deductions, you may group as many deductions as possible into alternate years, or every third year, and take the standard deduction in the intervening years (this strategy is not universally rewarding, but you should be aware of the possibility). You group deductions by paying them in one year. For example, instead of donating $1000 to your church every year, you donate $2000 every other year - you have grouped two years deductions. For example, assume that you itemize $8000 in deductions each year and that the standard deduction is $7000. So every two years your total deductions are 2 x 8000 = 16000. Now move $2000 of deductions from one year to the other: one year's deduction changes 8000+2000 = 10000, the other year's deduction changes 8000-2000 = 7000. Shouldn't that be 6000? No, for that year you now take the standard deduction! Your two years deduction total is 10000+7000 = 17000; you have gained $1000 in deductions. Similar logic applies if your itemized deductions are less than the standard deduction and you are able to group enough deductions into one year to exceed the standard deduction for that year. Deductions that might be easily grouped include charitable, some state income taxes (estimated tax payments, for example), some medical expense (it's the year paid, not the service year, that determines tax year) and property taxes (if a fee is charged for a late payment and you save more than that fee on taxes - its still a good deal). --------------------------------------------------------------------- Federal Categories: The federal categories are the same, whether you use the tax year for the transaction date or use a class for the tax year. Category & Transfer List Category Type Tax Description Fed Form Taxes Expns Tax Taxes: Fed & State fed-est-payment Sub Tax fed estimated payment 1040 L58 fed-payorrefund Sub Tax fed payment or refund 1040 L65/68 fed-withhold Sub Tax fed withhold 1040 L57 EACH EXAMPLE BELOW IS SHOWN FIRST USING TRANSACTION DATE, SECOND USING CLASS. Example 1: A federal income tax refund of $100 with $5 interest (total check $105) received 5/23/01 for 2000 would be entered as: date category amount memo 12/31/00 fed-payorrefund 100 5/23/01 5/23/01 interest-income 5 with fed refund, tot $105 5/23/01 (split entries) 105 fed refund fed-payorrefund/2000 100 interest-income 5 Example 2: The last estimated payment for 2000, made 1/15/01, would be: 12/31/00 fed-est-payment -100 1/15/01 4th 2000 est pay 1/15/01 fed-est-payment/2000 -100 4th 2000 est pay Example 3: You indicate that $20 of your $50 2000 federal refund is to be applied to the 1st 2001 estimated payment. 12/31/00 fed-payorrefund 50 4/15/01 $20 applied to 1st est pay 4/15/01 fed-est-payment -20 2000 refund applied 4/15/01 fed-payorrefund/2000 50 4/15/01 $20 applied to 1st est pay 4/15/01 fed-est-payment/2001 -20 2000 refund applied --------------------------------------------------------------------- State categories when using transaction date for state income tax payments/refunds are: Category & Transfer List Category Type Tax Description Fed Form Taxes Expns Tax Taxes: Fed & State state-estpay-S Sub Tax state estimate payment S state-estpay-SF Sub Tax state estimate payment SF SchA state-payrfn-S Sub Tax state pay|refund S state-offset Sub state pay|refund offset state-PrY-payrfn-F Sub Tax state prior yr pay|rfn F SchA state-PrY-rfn10-F Sub Tax state prior yr refund F 1040 W10 state-withhd-SF Sub Tax state withhold SF SchA State categories when using class for state tax payments/refunds are: Taxes Expns Tax Taxes: Fed & State state-estpay/class Sub Tax state estimate payment SchA state-payrfn/class Sub Tax state payment or refund SchA state-refund10/class Sub Tax state refund 1040 W10 state-withhd Sub Tax state withhold SchA where: F is item to be reported on federal return (transaction method) S is item to be reported on state return (transaction method) SchA is Schedule A State and Local income taxes 1040 W10 is 1040 State and Local Income Tax Refund Worksheet-Line 10 (the common case, there are other possibilities - see the line 10 description in your 1040 form) "10" is used in category names to remind us which are line 10 worksheet; the rest are Sch A or state only. and note - "state-offset" is NOT flagged as tax-related. - "state-withhd" does not require two different years and can be recorded using a class, or not (but you should be consistent). TurboTax: When using the transaction method: For federal tax reporting, include "F" and "SF" categories, and for state tax reporting include "S" and "SF" categories. Note, again, that the category "state-PrY-rfn10-F" is for the line 10 worksheet; not line 10 directly. When using the class method you are on your own (I suspect using class for tax year is not compatible with using TurboTax). EACH EXAMPLE BELOW IS SHOWN FIRST USING TRANSACTION DATE, SECOND USING CLASS. Example 4: Monthly withholding with a balance due on state filing. The withholding entries would usually be splits on your salary deposits. date category amount memo 1/31/00 state-withhd-SF -100 2/31/00 state-withhd-SF -100 ... 12/31/00 state-withhd-SF -100 1/31/00 state-withhd -100 2/31/00 state-withhd -100 ... 12/31/00 state-withhd -100 When filing the 2000 state return another $50 is due, we write the check 4/15/01 and record it with the following entries: 12/31/00 state-payrfn-S -50 paid 4/15/01, 2000 state filing 4/15/01 state-PrY-payref-F -50 2001 federal deduction 4/15/01 state-offset 50 4/15/01 state-payrfn/2000 -50 2000 state filing Why three entries when using transaction date? Either there is one entry, -SF, when the amount is reported on state and federal forms for the same year, or there are three entries, -S, -F, and offset, when the amount is reported for different years on state and federal forms. The first entry (-S) is for state 2000 totals. The second entry (-F) is for the 2001 federal deduction. And, since we have recorded a $50 payment twice, the third entry offsets (reverses) one of those entries without affecting tax reporting. You can offset either entry (that is, use either transaction date); its only a question, for Quicken reports, of which year you want the expense included in. I prefer the expense year to be the tax year (2000) rather than the payment year (2001); arguments can be made for either. Example 5. When filing, a refund of $40 is due us. There are two common cases for state or local income tax refunds (see the line 10 description in your 1040 form; be sure to read all of the exceptions listed there for other cases NOT covered in this text): case 1. The refund is for state or local income taxes paid in one prior calendar year. case 2. The refund is for state or local income taxes paid in two or more calendar years. Examples of payments in two or more years are withholding or estimated payments during the year followed by any of: the 4th estimated payment made in January of the following year, a payment made when filing a state return in the following year, an assessment of additional tax in some later year. Receive a refund after any of these and case 2 would seem to apply. As described in Pub 525 "Taxable and Nontaxable Income", Section "Recoveries", heading "Recovery for 2 or more years": ... you must allocate, on a pro rata basis, the recovered amount between the years in which it [the total tax] was paid. For amounts allocated to prior years, use the line 10 worksheet for each year to determine taxable amounts, then report any taxable amounts on line 10 of the year the refund is received. For any amount allocated to the current year, reduce the state or local income tax deduction for the current year by that amount. Example 5 case 1. The refund was for income taxes paid in 2000. The entries are: 12/31/00 state-payrfn-S 40 received 6/5/01 6/05/01 state-PrY-rfn10-F 40 2000 refund - Line 10 worksheet 6/05/01 state-offset -40 2000 refund 6/05/01 state-refund10/2000 40 2000 refund - Line 10 worksheet Example 5 case 2. Four estimated payments, each $1000, were made. 3 in 2000, the 4th in January 2001. There were no other payments (no withholding). 3/4 of the refund is allocated to 2000, 1/4 to 2001 (a copy of this allocation computation must be attached to the tax return). The entries are: 12/31/00 state-payrfn-S 40 received 6/5/01 6/05/01 state-PrY-rfn10-F 30 2000 refund - Line 10 worksheet 6/05/01 state-PrY-payrfn-F 10 2000 refund - Sch A deduction red. 6/05/01 state-offset -40 2000 refund 6/05/01 state-refund10/2000 30 2000 refund - Line 10 worksheet 6/05/01 state-payrfn/2000 10 2000 refund - Sch A deduction red. Example 6. When filing, a refund of $40 is due us and we check "apply refund to next year's (2001) 1st estimated tax payment". Add the following lines to the Example 5 cases. 4/15/01 state-estpay-SF -40 1st estimated pay, 2000 rfnd 4/15/01 state-estpay/2001 -40 1st estimated pay, 2000 rfnd The resulting entries (example 5 plus example 6) total zero. I enter an unnumbered check in the checking account, total $0 with splits. Example 7. Retired, we make four estimated state tax payments for a year, three during that year and the last one on 1/15 of the following year. 4/15/00 state-estpay-SF -300 1st estimated pay 6/15/00 state-estpay-SF -300 2nd estimated pay 9/15/00 state-estpay-SF -300 3rd estimated pay 12/31/00 state-estpay-S -300 1/15/01 4th est pay 1/15/01 state-PrY-payref-F -300 4th 2000 state estimated payment 1/15/01 state-offset 300 4th 2000 state estimated payment 4/15/00 state-estpay/2000 -300 1st estimated pay 6/15/00 state-estpay/2000 -300 2nd estimated pay 9/15/00 state-estpay/2000 -300 3rd estimated pay 1/15/01 state-estpay/2000 -300 4th 2000 state estimated payment Example 8: Assuming that 2000 was a "grouping" year, the 4th estimated payment of example 3 would have been made the last day of 2000 that the Post Office was open (it's the postmark date that counts - even though you have no record of it unless requested (certified,...)), thus moving the federal deduction from 2001 to 2000, and entered as 12/31/00 state-estpay-SF -300 12/31/00 state-estpay/2000 -300 We would also have mailed the full 2001 state estimated tax on the last Post Office open date of 2000. Thus recording the federal deduction in 2000 (grouping 2001 state estimated tax payment with the other 2000 federal deductions), while the state would receive the payment in early 2001 (the year it's due - just a little early in the year). The entries would be 12/31/00 state-PrY-payref-F -1200 all of 2001 state estimated payment 12/31/00 state-offset 1200 1/ 1/01 state-estpay-S -1200 all of 2001 state estimated payment 12/31/00 state-estpay/2001 -1200 all of 2001 state estimated payment A minor amusement - the "state-PrY-payref-F" category is being used for a future year. I should have named it "different year". Example 9. The state, out of the goodness of their heart, sends us a refund, in 2001, for the year 1997. All income tax payments for 1997 were made in 1997, so there is no allocation. The check is for $75, a $60 tax refund and $15 interest. The entries are: 12/31/97 state-payrfn-S 60 8/13/01 tax refund 8/13/01 state-PrY-rfn10-F 60 1997 tax refund - line 10 worksheet 8/13/01 state-offset -60 1997 tax refund 8/13/01 interest-income 15 1997 tax refund interest 8/13/01 state-refund10/1997 60 1997 tax refund - line 10 worksheet 8/13/01 interest-income 15 1997 tax refund interest --- end ---