How to treat tax withholding?

I’m self employed and need to withhold taxes for quarterly payments. My workflow looks like this:

  1. Money goes into automatically-tracked checking account
  2. I transfer withheld money to a manually-tracked withholding savings account
  3. Every quarter I transfer withheld money from withholding savings account bank to checking account
  4. I send a payment from checking account to gov’t

What’s a good way to approach tracking this with Tiller?

It’s all just transfers between accounts until the money actually leaves for the estimated payments to the government. Then it should be classified to a category such as “Federal Estimated Payments” or “State Estimated Payments”. I suggest making sure you keep them in a savings account separate from any other funds.

Agreed, assuming all of your various accounts are linked to your spreadsheet, using the transfer category as funds are moved from one account to the next would be the best option. Once the payment is made… as @Kathryn stated, you can use a category such as “Federal Estimated Payments”

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Thanks. Not totally sure I’m clear on the solution. I get they’re transfers. But I want to understand:

  1. The amount I’ve set aside for tax payments
  2. The amount I actually paid

Are either of you actually solving this problem? If so, what categories and category types do you use in your workflow?

Thx!

@rmr,

What do you mean by “manually-tracked withholding savings account” - does that mean it’s an account that Tiller can’t automate, but it is an actual savings account you have at a bank, or it’s a “virtual” savings account that you’re tracking manually within Tiller to try and keep this organized?

Are you also recording the transactions for this “manually tracked withholding savings account” in your Transactions sheet or just manually updating the balance?

I’m asking because that will affect your category workflows and how you should set things up to be able to see how much you’ve saved toward taxes and how much you’ve actually paid toward taxes.

Most of the year you likely want to budget for the savings.

If you’re recording both sides of the tax savings transactions this would net to $0, but if you want to see the savings item in your budget (to budget for savings) then you may also want a hidden income category (categories sheet hide from reports column) for the inflow to the savings account.

As long as you always save the amount you budgeted to save on the Yearly Budget sheet in the Foundation template you’ll be able to see how much you’ve saved for taxes.

When it comes time to make the payment you categorize the transfer back to your checking account as a transfer (both sides so you’d need both transactions in the Transactions sheet) and then when the check/withdrawal goes through categorize that as “taxes paid”

That would be my recommendation. As you can see it’s a little complex with so many moving parts.

If you have a simple business and tax situation, you might consider using the Estimate Quarterly Tax sheet to help you keep organized, but there are some caveats so be sure to read about the assumptions and expectations carefully.

Heather

Correct, it’s an account Tiller can’t automate.

Are you also recording the transactions for this “manually tracked withholding savings account” in your Transactions sheet or just manually updating the balance?

When money leaves my checking account (pulled automatically) I categorize it as “Tax Withholding” which is a Transfer category. The receiving account is manually tracked and I just update the balance for this account once a month.

Most of the year you likely want to budget for the savings.

I don’t actually. My income is spiky as I’m self-employed. Budgeting doesn’t make a lot of sense.

Right now the workflow is:

  1. Gross income comes into checking
  2. I take some percentage of it and move it to a manually tracked account at another bank. I categorize this as “Tax Withholding” which is a Transfer
  3. Come tax time, I move money from the manually tracked account bank to my checking account. I categorize this as Tax Withholding.
  4. I pay taxes from the checking account and categorize this as “Taxes” which is an Expense

It seems to be working OK so far. But curious how others handle this.

@rmr

3 should be coded as a transfer. This makes sense to me and would be how I would account for it.

Blake

@Blake Yes, #3 is coded as a Transfer. Edited the above post to include that. Thanks!