FAQ: How Do I Handle Estimated Taxes

Howard Roark

How do I keep track of estimated taxes?

Howard Roark

One Way To Handle Estimated Taxes

First, set up an asset account (call it [Estimated Taxes]). It’s not an actual account at a bank, it’s just an account within your Quicken file, kind of like a Savings Goal. When you send payments to the IRS, make the payee “IRS”, but make the category = [Estimated Taxes]. That will transfer money out of your bank account (so you can reconcile against your bank statement) to the [Estimated Taxes] account. Do that for each of your quarterly payments, even the one that occurs Jan 15 of the following year.

Then, after you’ve filed your return and you know what your actual numbers are, you’ve got three potential paths and one adjustment transaction.

1) If you’re getting a refund, create the transaction in whatever account you’ve told the IRS to send the refund.
Make the Category = [Estimated Taxes].
2) If you’re sending money to the IRS, create the transaction in whatever account you’re paying the IRS from.
Make the Category = [Estimated Taxes].
3) If you’re applying an overpayment to the next year’s taxes, just make the 1st quarterly payment, minus your overpayment.
Make the Category = [Estimated Taxes].

Then you need an adjustment transaction.

In the accounts that you’ve sent your quarterly payments from, you’ll see each payment and you’ve probably already reconciled those against your bank statements. You don’t want to mess with those. However, those transactions put money into your [Estimated Taxes] account. You’ve now got an account that shows a balance you don’t really have and the money in that account now needs to be changed to an Income Tax category.

To straighten that out, create a transaction in the account you sent the payments from (the one you reconcile), dated Dec. 31 of the tax year you’re working on. The transaction amount should be $-0-. Enter the -0- in the Payment column.

Once you’ve entered $-0- in the Payment column, open the “split” window, then enter the amount of taxes that you actually paid (from your tax return) with whatever category name you use for Income Tax. Quicken should automatically create another split line that is the exact same amount in the opposite direction right below it. Assign the category on that new split line to be [Estimated Taxes] and save the transaction.

That transaction will now book Income Taxes in the same year as the income and draw a balance out of the [Estimated Taxes] account so that the transaction balances to $-0-.

It’s OK if the [Estimated Taxes] account shows a balance (either positive or negative) as of Dec. 31, because you’ll never have to reconcile it against a statement.

Now that the prior year is done, you create your 2nd quarterly payment for the following year at the full amount, with the category = [Estimated Taxes] and repeat the whole process.


Procedure written by Bartt Shelton, approved by R.C. White (retired CPA).

[Both are Quicken Newsgroup participants.]