How should I categorize and consider estimated quarterly tax payments? I pay the IRS and State governments quarterly taxes on dividends. Should these estimated tax payments affect my monthly expenditure or should they be “hidden” from reports?
, Thanks for your question. Just for clarification, you’re wanting to budget money to set aside for these estimated payments? I’m not a tax expert, and definitely recommend getting advice from a tax or accounting professional, but based on my understanding you’d probably want to account for these in your monthly budget if you are trying to set aside a little each month to make a quarterly payment.
But, it also depends on the workflow you use. If you have automatic transfers to a separate account to help you save the money and you have BOTH accounts connected to Tiller and pulling transactions then you’d probably just want to categorize both sides as a Transfer and then use an “estimated payment” category for the actual payment to the IRS/state, which is an expense to you - unless this is associated with a business, in which case that’s a bit more complex and definitely talk with an accountant.
If you can share a bit more about how you have the accounts linked and the specific transactions you’re wanting to categorize I can probably help you come up with a better workflow.
Let me know.
Heather
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Hi @hbwilliams22,
Here’s some thoughts on your question. I’m not a tax accountant, but I’ve had the same issue.
The simple way would be to create 1 Estimated Tax Payment expense category. Or you could create two, one for Federal Tax Payments one for State Tax Payments. Since these expenses require cost outlays like food and gas, you probably want to budget for them and include them in your reports.
But, these estimated tax payments are not like ordinary expenses in some ways. You owe a certain amount in taxes, which is a liability. When you make the estimated tax payment, you are really reducing your tax liability.
You could create additional Liability Accounts for Federal and State taxes payable. Tiller would not be able to automatically adjust these accounts, but you could manually make adjustments to them.
This would give you the ability to know if you were ahead or behind in your expected tax payments. But it might be more complicated to set up than the added value it brings.
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Great question @hbwilliams22,
Another option— you have so many choices!— is Tiller’s envelope budgeting spreadsheet (available here). With envelope budgeting, you can budget and track 1/3 of the quarterly outlay on a month-to-month basis (as @jono suggest). The category will accrue until you make the payment then drop back to zero.
Learn more about the Tiller Budget solution…
Good luck,
Randy