Prepayment Tax at Source

If you have paid tax at source of 20% and this carries forward as an opening balance to the next year, what would be the contra entry to delete this in the current year?

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Sorry, I can't help you with this ... I need a bit more information ... such as:

  • what country you are from;

  • what is the name of the account that your entry pertains to;

  • what was the source / reason for the tax being withheld at source;

  • why you want to "delete" the entry.

... but I will try and guess what you are asking by making a whole lot of assumptions.

I'm going to assume you are from Canada and are a CCPC ... and that you are dealing with income tax withheld at source ... such as when you make a withdrawal from an RRSP (relates to personal finances not the business) or have US investment income (could relate to either the business or personal investments).

I'm also going to assume you are trying to book your income tax expense for the year, the account is Income Tax Payable on your balance sheet ... and that the tax withheld pertains to the business ... and not the owner's personal affairs.

If that is the case, the amount gets reported at line 800 on your T2 return ... which affects the amount of income tax
due and payable.

When you book your income tax expense entry, the pre-payment of tax has been taken into account ... so you should not need to "delete" it by recording a "contra*" entry ... as the journal entry should bring the balance to zero for amounts pertaining to your prior year. There could still be a balance in the account pertaining to current year tax.

If a year-end journal entry was made estimating incomes taxes payable, you will need to reverse the prior year estimate and book the actual in the current year. What shows up in your current year will be the adjustment to actual ... the difference between the estimate and the actual tax liability.

If the amount pertains to the owner's personal finances, record a journal entry to reclassify the amount to the shareholder's loan account.

As you can see, I've just made a lot of assumptions ... and provided links to information on this site that may or may not help you ... so I have probably not answered your question.

There should be no deleting.

You will have to post back (click on the comments link below) with more information to get a better answer.

I look forward to hearing from you.

*I want to say that I have never heard the term contra used before when discussing adjusting journal entries ... but I am familiar with contra accounts.

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