Different taxes, different accounts
Payroll taxes withheld from employees and sales tax collected from customers are liabilities you hold for the government. Paying them reduces the liability and is not an expense. The employer's share of payroll tax is an expense. Income tax is an expense for a corporation. For pass-through entities, tax paid by the owner is generally an owner draw, not a company expense.
If every payment to a tax agency goes to a single "taxes" expense account, you cannot tell what you owe or what you paid for what.
Record the right tax and period
When you pay a tax agency, note the tax type, the period it covers, and the confirmation. A payment applied to the wrong period or the wrong tax can leave one return looking unpaid and another overpaid. Keep the payment confirmation with the return it relates to.
Estimated payments are payments toward the current year's tax. Record them against the tax liability or as owner draws, depending on the entity, and reconcile to the return when it is filed.
Reconcile the liability accounts
Each period, compare the balance in each tax liability account with what your records say you owe. Sales tax payable should equal collections not yet remitted. Payroll tax payable should equal withholdings and employer taxes not yet deposited. Differences are the first sign of a missed deposit or an error.
Refunds
A refund is an overpayment coming back. Before recording it, identify which tax, which period, and what created the overpayment. A refund of payroll tax reverses a prior payment, and does not increase income. A refund of income tax reduces the tax expense for the year it relates to. Interest on a refund is separate income.
If you receive a refund you did not expect, contact your preparer before spending it. The agency may have applied a payment from another period, or a notice may follow.
Keep proof
Keep the return, the payment confirmation, and any notice for each tax and period. When the agency asks what you paid and when, the answer should take a minute to find.
Frequently asked questions
Are tax payments an expense?
It depends on the tax. Payroll taxes withheld and sales tax collected are liabilities. Employer payroll taxes and corporate income tax are expenses.
Where do estimated payments go?
Toward the current year's liability for a corporation, or as owner draws for a pass-through owner. Your preparer can confirm.
What if a payment went to the wrong period?
Contact the agency to re-apply it, and keep the correspondence.