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taxmanrog
taxmanrog, Certified Public Accountant (CPA)
Category: Finance
Satisfied Customers: 742
Experience:  Licensed CPA, MA, MST with 31 years' experience. Teach Accounting and Tax courses at Masters level.
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Dumb accounting question... been looking at this too 50k

This answer was rated:

Dumb accounting question... been looking at this too long
50k Payroll expense
15k Federal Withholding
1k Medicare Withholding
6k State withholding
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$28k paycheck to employeesSeems we should make these entries:
Credit $50k Payroll Expense
Credit $29k Cash
Taxes were all accrued. What debit/credit entries do we make?
Customer: replied 1 month ago.
Attached should be much less confusing... here's where it gets fun. If taxes were not paid at year end, and corp accounts on a cash basis, can it deduct the taxes payable but not yet paid?

Welcome to Just Answer! Thank you for giving me the opportunity to assist you! I will do my best to help!

Give me a few minutes to answer your question.

You have the entry backwards. It would be:

$50k Debit Payroll Expense

$15k Credit Federal Withholding Tax Payable

$1k Credit Social Security Tax Payable

$6k Credit State Withholding Tax Payable

$28k Credit Cash

If you are on the cash basis of accounting, you adjust your income for receivables and payables, removing them to adjust to cash basis.

You cannot take a deduction for accrued payroll taxes if you are on the cash basis. You are only allowed to deduct what you actually pay.

Even if you are on the accrual basis of accounting, there are limitations to the items that you can deduct - for example, accrued bonuses have to be paid within 2 1/2 months of the end of the year. Also, accrued payroll for shareholders/owners are not deducted. There is an election that one can make if you are on the accrual basis of accounting to currently deduct prepaid expenses (instead of deducting them as used over the subsequent year). But this is for accrual basis, to basically put them on a cash basis for prepaids.

I hope this answers your question. If you have any more, please feel free to ask and I will be happy to answer.

Thanks! Have a great weekend!

Roger

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