Setting up to track income tax

To track income tax, each tax-related account must have a tax line assignment. If you choose one of the preset charts of accounts during the New Company Setup Assistant interview, those accounts already have tax line assignments; the instructions below do not apply to you.

Follow the instructions below when:

These instructions do not apply if you need to add new accounts to a chart of accounts you chose through the New Company Setup Assistant, or if you file Form 990, 990PF, or 990T. See instead Assigning tax lines to new accounts.

To set up to track income tax:

  1. Through the New Company Setup Assistant, set up a dummy QuickBooks company that has a chart of accounts similar to your own. You can use the tax line assignments for the new chart of accounts as a guide for assigning tax lines to your own accounts.

    To set up the dummy company:

    1. Choose File > New Company.
    2. Click General to display the tabs for the general topics.
    3. On the Company Info tab, select the type of business that most closely resembles your own and click Yes to accept the income and expense accounts that QuickBooks selected.
    4. Click Leave to leave the interview.
  2. Print the chart of accounts for the dummy company: choose Lists > Chart of Accounts, and then choose File > Print Account List.
  3. Close the dummy company you just created and reopen your own QuickBooks company:
    • Choose File > Open Company.
    • Enter the name of your company file and click OK.
  4. Print the chart of accounts for your company.
  5. Compare the two charts of accounts:
    • On the chart of accounts for the dummy company, look for accounts that correspond to the accounts you use in your own business. The account names don't have to match — what's important is to find accounts that track the same type of income or expense. For example, an expense account named “Freight & Delivery” in the dummy company chart of accounts could correspond to an expense account named “Shipping Costs” in your own chart of accounts.
    • When an account on the dummy company chart of accounts corresponds to one of your income or expense accounts, choose Edit from the Action pop-up menu ( image) to see the income tax line that QuickBooks assigned to the account in the dummy chart of accounts.
  6. In your chart of accounts, assign the appropriate income tax line to each income and expense account:
    • In your chart of accounts, select the account.
    • Choose Edit from the Action pop-up menu ( image).
    • In the Edit Account window, choose the tax line from the Tax Line list. For accounts that are not tax-related, choose <Not tax-related>.
  7. If you file a business tax form such as Form 1120, 1120S, or 1065, assign the appropriate Schedule L tax lines to your balance sheet accounts.

    If you file Form 1040: We recommend that you assign tax lines only to income and expense accounts. Although QuickBooks also lets you assign tax lines to balance sheet accounts, in many cases a balance sheet account won't report the correct total at the end of the tax year. For advice on when it's appropriate to assign a tax line to a balance sheet account, see your accountant.