Transactions for quarterly tax deposits/941 for capital gains?

jasonb885

Hi,

For some short-term capital gains from options trading, I'm curious what transactions I might enter to account for the 941 deposits to the IRS made quarterly. If this were for income, as the deposits came in, I'd split the transaction and credit the taxes due against a taxes due liability account and then drain this whenever I did the 941 deposit to the IRS.

But this is realized short term capital gains in an investment account. So I don't think there's anyway to really offset this. Instead maybe I need to use a Federal taxes category assignment for the withdraw transaction from my checking account?

What I liked about the split approach is it doesn't overstate my after-tax income, as all other deposits I get are W2 employment income, so it's already "after tax". But these short term gains are pre-tax, and in income reports would therefore technically overstate my income for the period, but that comes out in the wash in the expenses part of the report.

But technically the quarterly tax payments aren't an expense, they're just a taxes due liability that I then zero out when paying the IRS. Is there a creative way to mange this in Quicken?

Open to any suggestions that anyone might have. Thanks!

NotACPA

Those taxes are, indeed, Federal Income tax. Use that category. That they might be offset when you file next year is irrelevant.

jasonb885

https://community.quicken.com/discussion/comment/20436965#Comment_20436965

Yes, I have no doubt about this.

But every quarter, these short term gains accumulate; then a portion, the taxes owed, are paid out to the IRS. I'd like to reflect this as a liability in a liability account, and reflect the tax payment as a transfer out of the liability account, not as an "expense category". It's a tax liability I have that sits on the books until extinguished. While this is I think a common thing for a double-balance accounting system, I don't think there's any practical way to handle it in this way under Quicken?

Thanks.

NotACPA

Transfer out of a Liability account to WHAT? In Q, transfers are from one account to another … unless you intend to create a TAX Liability account … but it wouldn't be that because when you transfer money into it, it would have a positive balance, and Liabilities have negative balances, such as your credit cards.

Just expense it, and if you get money back, post that to the same expense category.

volvogirl

Why do you mention form 941? Are you an employer making quarterly payroll deposits? That is not what you use to pay the IRS estimated payments. You either send in a 1040ES slip with a check or pay the IRS online.

Here are the current 1040ES instructions and blank forms (where to mail is on page 4)

https://www.irs.gov/pub/irs-pdf/f1040es.pdf

Or you can pay on the IRS website. Be sure to pick 2024 1040ES payment
https://www.irs.gov/payments

NotACPA

@volvogirl GOOD CATCH. Hadn't thought about the 941. Does change things quite a bit.

Jon

I do something like this with medical bills. When I receive treatment that I know I'm going to get billed for later, I record the anticipated expense in a Cash account as an expense with the appropriate medical expense category; once insurance processes the claim I can go back & revise it to be the actual amount they didn't cover. The negative balance in the Cash account indicates how much outstanding liability I have.

When the bill eventually arrives, I record the payment as a transfer to the Cash account; the transfer offsets the original expense so the account balance goes back to zero.

jasonb885

Oops, yes, I'm wrong about the 941. I used to make 941 deposits for a business; I haven't done these quarterly personal tax payments yet, so didn't look yet to see what is what. My fault.

I guess in my ideal scenario, in an account named Brokerage, I'd have options transactions, STO, BTC, and so on. These result in a short term capital gain for, say, May. Some of this money is taxes due, so I want to stay on top of that, and do quarterly estimated tax payments.

If this happens in say, April, May, and June, Q2, I'd want a growing tax liability reflected on my books; Then at the end of that, when it's time to pay up in July, I'd have the origin of the payment that I make to the IRS be the liability account. It's now zero. And it would be the other side of my transaction. Now I'm in the clear, and during Q3, this tax liability account will again increase to reflect my outstanding liability.

So that's kind of what I envision achieving.

Maybe I'm making this too complicated, and I can just do that, exactly like that?

If this were a 1099, I'd do a split transaction for the income deposit, with the tax portion being a "transfer" between the liability account for the correct withholding amount, and the balance attributed to an income category, like Income/Self employment, or whatever. What throws me off here, is this is a realized short term capital gain. I don't think there's any split transaction to be setup here, and doing this for dozens of short options trades would quickly get overwhelming anyway.

So if there's some way to grow the liability due the IRS throughout the quarter, then zero that with my quarterly payment that gets pulled from my checking account, that would be golden.

Thanks!

NotACPA

@jasonb885 If you click the Circle containing 3 dots, that's adjacent to your thread title, you can edit that title to be more accurate.