A taxing problem

[pfoomer]

Am I doing this correctly...?

I receive interest from my bank

Gross 1000
Tax Collected 100
Net 900

I enter a transaction of 900, with tax collected of 100, this means I actually have 900

When I produce a report, I see this

Taxes - Collected Year 2009
Date Payee/Issuing Gross Taxes Total
17/04/2009 800.00 100.00 900.00
Total: 800.00 100.00 900.00


The report seems incorrect.

 

[pila]

Shouldn't that be Taxes Paid , instead of collected?

Pila

 

[pfoomer]

more taxing questions

Shouldn't that be Taxes Paid , instead of collected?

Pila

Well, the tax is collected and paid by the bank, so I am not sure which is correct, however, if I do another transaction, same figures, using tax paid, the report shows

Date Payee/Issuing Gross Taxes Total
18/04/2009 800.00 100.00 900.00
Total: 800.00 100.00 900.00

So both cases the same, entering the net amount shows an incorrect report

it should show, I think

Gross Taxes Net
1000 100 900

and the net reflects the correct balance in the bank.

Entering the gross amount, and the tax paid/collected, shows the bank balance as 1000 which is incorrect, it should be 900 (as 100 has gone to the taxman)

 

[pila]

Ah, this is withholding tax. I wasn't quite sure what collected taxes meant.

But I think you be better of to have an Account called Interest received and an account Tax (withholding tax).

Interest received----Bank-----1000

Withholding Tax---Interest received---100


I believe the Tax report you're talking about gives a break down what happened with Tax same as your Account statement.


Pila

 

[pfoomer]

huh

Ah, this is withholding tax. I wasn't quite sure what collected taxes meant.

But I think you be better of to have an Account called Interest received and an account Tax (withholding tax).

Interest received----Bank-----1000

Withholding Tax---Interest received---100


I believe the Tax report you're talking about gives a break down what happened with Tax same as your Account statement.


Pila

If the tax is collected by the bank, then I assume this is collected tax, if I pay it on the gross interest, then it is paid tax.

icash appears to treat both actions in the same way, Withholding Tax according to your reply, appears to be paid tax, ie paid gross and tax paid after I receive it, as opposed to collected, tax collected prior to me getting the interest.

This is , I feel, a semantic problem, but, and over to you Stan, I think there is a problem with the report. or a clarification required on data entry.

Now, a third case, you can have Deferred Interest, in other words, it is neither collected, or paid or received, until you request it, the only way I have found to account for this situation is to add the interest as an unreconciled entry, until its requested, then I pay the tax based on the gross amount.

Having a seperate 'Tax Account' is an additional overhead, ( extra transactions) it works as it stands, but the report is , I think, incorrect.

 

[pila]

Correction:

This should be:

Interest received--------Bank---1000

Bank---------Withholding tax------100

When you do account statements you see that your bank is credited by 900. (1000 minus 100).
Your interest received account shows that you earned 1000
and your Withholding tax account shows 100 in the "blue",
because this is a claim what you have when you do your annual Tax return.

Just to make sure IANAA.

Pila

 

[pfoomer]

more tax

Correction:

This should be:

Interest received--------Bank---1000

Bank---------Withholding tax------100

When you do account statements you see that your bank is credited by 900. (1000 minus 100).
Your interest received account shows that you earned 1000
and your Withholding tax account shows 100 in the "blue",
because this is a claim what you have when you do your annual Tax return.

Just to make sure IANAA.

Pila

If you do not qualify for a tax refund, due to the tax limits of your country, you may not get the 100 back, so your bank balance will be incorrect. I prefer to know exactly what is in my bank, and tax returns are a bonus!!

 

[pila]

""If you do not qualify for a tax refund, due to the tax limits of your country, you may not get the 100 back, so your bank balance will be incorrect. I prefer to know exactly what is in my bank, and tax returns are a bonus!!""

I think you misunderstand. First, your bank account gives you the right balance if you do it the way I wrote down.
Second, I didn't mention a tax refund.

When you do your annual Tax return, you set off your prepaid taxes ( in this case withholding Tax) against Taxes owed.
If that comes up as a refund, so much the better.
But through out the whole process: your bank balance has been correct (1000-100=900), your income out of Interest shows up as 1000 and withholding tax shows 100.

Hope this clears it up.

Pila.

 

[pfoomer]

""If you do not qualify for a tax refund, due to the tax limits of your country, you may not get the 100 back, so your bank balance will be incorrect. I prefer to know exactly what is in my bank, and tax returns are a bonus!!""

I think you misunderstand. First, your bank account gives you the right balance if you do it the way I wrote down.
Second, I didn't mention a tax refund.

When you do your annual Tax return, you set off your prepaid taxes ( in this case withholding Tax) against Taxes owed.
If that comes up as a refund, so much the better.
But through out the whole process: your bank balance has been correct (1000-100=900), your income out of Interest shows up as 1000 and withholding tax shows 100.

Hope this clears it up.

Pila.

If I understand correctly, you maintain a seperate ledger to account for the tax?

Also, if thats the correct way to do it, what is the purpose of the tax fields on the transaction box, entries don't go into a visible transaction ledger (or do they?, however I have never seen them), but they are visible in the report (even if its a little strange in its headings, the original question)