How to automatically assign a portion of business income to tax (Q Mac)

GabrielSimon

I have a combined budget with my wife. I am a salaried employee, and she is self-employed. My income comes in after-tax, whereas her income comes in pre-tax.

I'd like to automatically generate a % based tax expense every time she get business revenue. E.g. if she gets a 1,000 dollar payment, then I'd like to automatically generate a $330 (33%) tax expense. Unfortunately I cannot use a quckfill split rule because that can only be a fixed dollar amount not percentage based and her income is variable. E.g. she might get 30+ transfers from her clients in a given month all of which are for a different amount.

Ultimately, at the end of each month, I want to be able to tell if we're making more than we're spending and by how much, and to do that I need to take into account accrued tax expenses.

jacobs

There's no way to automatically do what you want -- e.g. have a formula-driven split of a transaction. There are two ways you could approach this that I can think of...

For each deposit you record with income for your wife, apply a split to transfer one third to an accrued taxes account. There are a few things you can do to make this entry easier.

a) Create the deposit payee with a quick fill rule containing two splits, one categorized as income and one a transfer to the taxes account. Do not save any amounts, just the "template" of the transaction.

b) When a payment comes in enter the Payee, and select it from the pop-up list. The split will auto-open. Click in the first split amount, enter the total payment * 2 / 3 = to enter 2/3 of the full amount, and then enter total payment / 3 = (or total payment - first split amount = ) in the second. When you Save, Quicken will add the split amounts to create the transaction total. 

That said, I'm not a fan of splitting out a portion of her revenue to a separate tax liability account, for two reasons. First, it moves money out of your checking account, when that has not happened in the real world. So reconciling your checking account becomes difficult. Second, if you're splitting her deposits in this way, you're diminishing her total income, which you'll want for tax purposes as well as gauging how she's doing.

And that's a lot of extra work if you have many of these each month. So you could do a single monthly adjusting entry. That is…

• Record each of your wife's income deposits at their full value.
• At the end of each month, run quick report to see the amount of revenue she earned that month. Create a transaction with a Payee like Accrued Tax Liability.
• The transaction would have two split lines: a positive Transfer to the accrued tax account for one third of the monthly total, and a negative of the same amount to a category you create for Taxes Payable.  The transaction would total zero dollars, and would thus not affect your checking account balance.

Are you making your tax payments quarterly? Then when you make a quarterly payment to IRS, you'd record it as a payment from your checking account, using the categories for the actual federal and social security taxes paid. In the same transaction, enter two more split lines, in opposite amounts: one to reduce the accrued taxes account, and the other to reduce the Taxes Payable category. In other words, each quarter, you'd record the amount you actually paid, and eliminate the amounts you set aside as monthly estimates. If your quarterly payment is exactly the amount you accrued in each of the prior three months, then your accrued taxes account would go to zero and your Taxes Payable expense category would also go to zero. Does that make sense?

GabrielSimon

Hi Jacobs, this is really helpful! Definitely agree that the single adjustment at the end of the month is the best way to go. It's a little complicated, but I'm going to give it a go and will let you know if I run into any trouble. Thank you again for your very thorough advice!