I am trying to account for sales tax. I just totalled up a Quarter of sales tax and normally, I would create an entry like:

  • Debit "Business Income Checking Account" (true checking account)
  • Credit "Sales Tax Payable"

but why wouldn't I just do the following:

  • Debit "Business Income Checking Account" (true checking account)
  • Credit "Business Sales Tax Checking Account" (true checking account)

Then I could just do a bank transfer from my "Income" account directly to my "Sales Tax" account and just write a check from the "Sales Tax" account to the state. Can I do this?

  • Are you asking about how to do this in a particular software system? Oct 29 '11 at 0:29
  • @Chris - No, I am asking if I need to actually do a journal entry that credits Sales Tax Payable or can I just bypass that and credit my actual "sales tax" checking account that I have set up. Which is the account that I literally write the checks to the state from. Oct 29 '11 at 0:36
  • OK. Who would consumes the resulting accounting ledger and data - your accountant? Tax authorities? i.e. Who would you be trying to please/satisfy by doing it in a particular prescribed manner? Oct 29 '11 at 14:30
  • 1
    Good question. If you can't tell, it's my first year in business. :-) I suppose I'd be trying to please myself and have my books set up in such a way that it'd be intuitive for a tax professional to consume it during tax time. Also, I'd hope that the method be considered compliant or at least not considered too far from a best practice. Oct 29 '11 at 14:45

Why would you need to have a separate checking account just for tax payments? As long as your categorize your expense properly, you can run a report based on that category to present only your tax responsibilities. You can set up your account how you want, but IMO it seems excessive for quarterly tax payments. My other thought is that you may also be required to pay monthly bank charges to have a second business checking.

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