makbo wrote:OK, so accruing is not OK for cash basis taxpayer, if I understand the cites provided correctly. Yet, we have multiple responses saying we commonly do that (and also see a quote below I found from 3 years ago, at the Quickbooks community site). So why the disconnect?
Pick your poison.
(1) If we prepare payroll in QuickBooks, that's how it handles the entry, and since the software says to do it that way, it must be right! (the TurboTax defense)
(2) Literally not knowing the rules.
(3) Knowing the rules but disregarding them because of reasons (i.e. what you posted from the QB community)
(3)(a) It's not material; pass.
(3)(b) That's the way we've always done it.
(3)(b)(1) Q: Why did the accountant cross the road? A: He looked in the file and saw that's what he did last year
(4) Some other reason or combination of reasons.
The OP did not mention the trust fund portion of payroll taxes, which also may not be deposited in the same year as accrued, but I suppose the argument there is that it's already not the company's money at that point, so they have in effect paid it as of the paydate.
Yes, the trust fund taxes withheld from employee pay are deductible as wage expense as of the payment date. The basic payroll entry under the cash method would be Dr Wage Expense, Cr Cash (for amount paid to employee), Cr Payroll Liabilities (for taxes withheld from employee)
What is the solution, i.e. the practical way to do it correctly? If I have the QB books as of 12/31 on cash basis, it's going to have payroll liabilities if not all deposits have been made yet. Do I make M1/M2 adjustments on the 1120S (or journal entries in QB for a Schedule C)?
I don't love running anything through the M-1 unless it absolutely needs to because it's incredibly easy to make errors that way. My preferred method, assuming the financials are run on a tax basis in QB, is to create a contra-liability subaccount under payroll liabilities and make a journal entry to debit that account and credit payroll tax expense for the amount of unpaid employe
r payroll taxes at the end of the year. You can reconcile the account balance, you're less likely to make a mistake, and your tax basis year-end financials will print correctly on tax basis.