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Im a sole proprietor doing IT consulting. This April after

I'm a sole proprietor doing...
I'm a sole proprietor doing IT consulting. This April after doing my taxes I paid the IRS about $10k in federal income taxes. What is the best way to show this on my books? Do I post that as an expense which reduces my Net Income or leave as a draw (like I do my "paychecks")?
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Answered in 4 minutes by:
1/3/2011
CGCPA
CGCPA, CPA
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Welcome to Just Answer. I am here to help you resolve your tax and finance concerns. Please feel free to ask anytime you need extra help.

 

In a sole proprietorship you can reflect this as either a draw or as an expense of doing business. The key to remember here is that this item is not deductible on your tax returns. If you feel that showing as a expense gives you a more accurate picture of your business operations it is correct to do so. I would personally show it this way but on a line after net income.

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Customer reply replied 6 years ago
Ok, makes sense. When you say show AFTER net income where would that then show on the Balance Sheet?

If I leave it off expense it goes to my Owners Draw on the Balance Sheet. If I leave it on expense it shows on Net Income. Would you have another line entry called "Taxes Paid" or something under Capital?
You can add the line between net income and the line above on the income statement so that your P&L closes properly or add the line taxes paid in the equity section. Either way it will serve to reduce equity as it should. We often make the mistake in using the term sole proprietorship in believing we have no partners in our business activities when we really do - the government. And, as partners they gave themselves the advantage in determining how their share is to be determined.
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