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How to Categorize Tax Refund/Expense Record-keeping
Old 04-06-2009, 05:57 PM   #1
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How to Categorize Tax Refund/Expense Record-keeping

We had far less investment income last year, but paid lots of estimated tax, so we are due a "refund" which will be applied to our April and June 2009 estimated tax payments. I am not sure how to categorize this situation on my spreadsheets.

This year's estimated taxes are definitely expenses, but the tax refund isn't income -- it's our own $$, come back to us for a little while just to say "Hello! And bye-bye!"

How do others handle this in your record-keeping?

Amethyst
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Old 04-06-2009, 06:00 PM   #2
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I call it income for home budgeting purpose as I called it an expense when I sent it away.
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Old 04-06-2009, 07:34 PM   #3
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Wouldn't it decrease you tax expense and increase your income (savings if you keep it in you bank account)
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Old 04-06-2009, 09:17 PM   #4
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Put a negative amount in the taxes on your spreadsheet or subtract it from this years taxes.

How do you handle other "refunds"? That's how I do it if we return something we purchased. It's not treated as income, it's a negative expense.

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Old 04-07-2009, 06:11 AM   #5
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I call it Income in the current year if it comes from a prior year (which refunds usually do). You can call it a "credit" to this years expenses and that does exactly the same thing to to bottom line (Net income after expenses). Alternatively, you can just go spend it and never enter it anyplace.
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Old 04-07-2009, 08:40 AM   #6
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What is your purpose? Maybe you need 2 sets of books:
1) Measure current yr cash flow/"income"
2) Measure "real yr" expenses.......put as credit on expenses.....but not in yr received .....after all, you overpaid in previous yr so previous yr taxes are inaccurate.

I so rarely get refunds that this issue hasn't been given much thought. This yr, I'm in same boat as you.
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Old 04-07-2009, 03:54 PM   #7
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Amethyst- I ran into this problem when I began to get serious about retirement planning. I use Quicken and needed a way to differentiate between tax year amounts; my solution was to create Tax-Year oriented categories for both fed and state taxes i.e. I have "Fed Tax-Year 2008", "Fed Tax-Year 2009", etc categories that keep me straight with taxes by year.

Your "Income" from the Tax Year 2008 refund gets converted into an "Expense" ending up in the Tax Year 2009 Tax payment which you need to track for the 2009 Tax season. This process keeps the books consistent for the checkbook and for the tax accounting without too much complication.

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Old 04-07-2009, 04:06 PM   #8
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I do not keep track of income, only expenses. I don't have much control of RI, but I can control expenses. Whatever you do, just be uniform from year to year so that you're not comparing apples to oranges.
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Old 04-08-2009, 02:54 PM   #9
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What Audrey said.

Treat it the same way you would if you paid the estimated tax in person, and they immediately gave you your refund.
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Old 04-08-2009, 04:12 PM   #10
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I used the term "negative expense", but the more correct term would be a "credit" against a given expense category. Certainly that is how refunds for anything would be treated. It's not income. It's just a reduction of a certain expense.

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Old 04-08-2009, 06:04 PM   #11
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Treat it the same way you would if you paid the estimated tax in person, and they immediately gave you your refund.

And just as immediately took it away! I guess this would be the simplest, thus the best, way of dealing with it. Thanks!
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Old 04-08-2009, 08:12 PM   #12
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I treat the refund as a reduction in your Fed TaxYear 2008 tax Expense
and
as an increase in your Fed TaxYear 2009 tax Expense.

If you were using your spreadsheet to track your checking account balance there would be no change due to these transactions - but you will need to track the "Fed TY 2009 Tax Expense" above as part of your '09 1040ES Estimated tax payments. The '08 tax refund will 'live another day...' to become a part of your 2009 estimated tax payments on line 63 of your 2009 IRS Form 1040.

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