Tax accounts

[Simon B]

Hello,

I am newly self employed and have to put aside X% of my income every
month to be collected by the tax office at the end of the year.

To make this easier, I put the X% into a separate bank account so I
don't spend it. I like to see which money is mine, and which isn't.

In MoneyDance, the net worth feature is great  - it tells me how I am doing.
Unfortunately the net worth feature includes my account with the tax
in, making it unusuable now.

How can I use MoneyDance to keep track of how much money I have in my
accounts, but exclude this account used for tax? If it's not possible,
what other Java based personal finance products does anyone recommend?

Thanks in advance for your collective help.
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[Jill Lundquist]

Hello,

The usual way to approach net worth is to list assets and liabilities and
subtract the latter from the former to get net worth.  In your situation,
you have the money earmarked to pay taxes listed as an asset, which it is --
it's money in your account and under your control.  You're also right that
your net worth should not reflect that money.  To have your net worth come
out right you have to have a corresponding liability of the same amount.

I would try keeping your current asset accounts and in addition creating a
liability account to account for the amount that will be owed for taxes.

Best,

    Jill

On Sun, Aug 31, 2008 at 11:26 AM, Simon B <sbwien@...> wrote:

> Hello,
>
> I am newly self employed and have to put aside X% of my income every
> month to be collected by the tax office at the end of the year.
>
> To make this easier, I put the X% into a separate bank account so I
> don't spend it. I like to see which money is mine, and which isn't.
>
> In MoneyDance, the net worth feature is great  - it tells me how I am
> doing.
> Unfortunately the net worth feature includes my account with the tax
> in, making it unusuable now.
>
> How can I use MoneyDance to keep track of how much money I have in my
> accounts, but exclude this account used for tax? If it's not possible,
> what other Java based personal finance products does anyone recommend?
>
> Thanks in advance for your collective help.
> _______________________________________________
> moneydance-info mailing list
> moneydance-info@...
> http://moneydance.com/mailman/listinfo/moneydance-info
>

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[Simon B]

Hi Jill,

Thanks for this. So essentially my Liability account is the tax
office, and when the account is negative I owe them money.
When it comes to actually pay them, I transfer money from my tax
holdings account to the Liability account.

If I have understood this correctly, this seems quite neat - thanks!

On Sun, Aug 31, 2008 at 1:18 PM, Jill Lundquist <jill@...> wrote:

> Hello,
>
> The usual way to approach net worth is to list assets and liabilities and
> subtract the latter from the former to get net worth.  In your situation,
> you have the money earmarked to pay taxes listed as an asset, which it is --
> it's money in your account and under your control.  You're also right that
> your net worth should not reflect that money.  To have your net worth come
> out right you have to have a corresponding liability of the same amount.
>
> I would try keeping your current asset accounts and in addition creating a
> liability account to account for the amount that will be owed for taxes.
>
> Best,
>
>    Jill
>
> On Sun, Aug 31, 2008 at 11:26 AM, Simon B <sbwien@...> wrote:
>
>> Hello,
>>
>> I am newly self employed and have to put aside X% of my income every
>> month to be collected by the tax office at the end of the year.
>>
>> To make this easier, I put the X% into a separate bank account so I
>> don't spend it. I like to see which money is mine, and which isn't.
>>
>> In MoneyDance, the net worth feature is great  - it tells me how I am
>> doing.
>> Unfortunately the net worth feature includes my account with the tax
>> in, making it unusuable now.
>>
>> How can I use MoneyDance to keep track of how much money I have in my
>> accounts, but exclude this account used for tax? If it's not possible,
>> what other Java based personal finance products does anyone recommend?
>>
>> Thanks in advance for your collective help.
>> _______________________________________________
>> moneydance-info mailing list
>> moneydance-info@...
>> http://moneydance.com/mailman/listinfo/moneydance-info
>>
> _______________________________________________
> moneydance-info mailing list
> moneydance-info@...
> http://moneydance.com/mailman/listinfo/moneydance-info
>

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[Edward Reid]

At 14:24 08/31/08 +0200, Simon B wrote:
>So essentially my Liability account is the tax office, and when the
>account is negative I owe them money. When it comes to actually pay them,
>I transfer money from my tax holdings account to the Liability account.

This will work. A slightly more complex method which tracks the real world
better is this:

Tax Escrow (the bank account that you call tax holdings)
Tax Liability (a liability account representing what you expect to pay in
taxes)
Future Taxes (a category closely linked to Tax Liability)
Tax Office (a category, the destination of actual tax payments)

When you make an estimate of a new tax liability of amount x dollars (I'll
use dollars for the purposes of discussion), transfer x dollars from your
regular bank account to Tax Escrow, and transfer the same amount from Tax
Liability to Future Taxes (in other words, pay from Tax Liability to
category Future Taxes).

When you make a true tax payment, make the real payment from your bank
account to the tax office, record the payment in MD from Tax Escrow to Tax
Office, and make a transfer from Future Taxes to Tax Liability to zero out
Tax Liability.

Assuming the tax payment is only due at the end of the year (or whatever
taxation period), this represents the real world better because it only
shows transfers to Tax Office when you actually make a payment, while it
also shows the liability as you calculate it.

I won't say one is better than the other -- one is simpler, the other
corresponds better to the real world. Both advantages are significant.
Choose which is better for you.

Edward
--
Art works by Melynda Reid: http://paleo.org

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