Entering accrued taxes for Form 1120 / 1120S corporations in ProConnect

To activate accrual options:

1. Under General, go to Miscellaneous Information, and select the Miscellaneous tab near the top of the workspace.
2. From there, scroll down to the Miscellaneous Information section and select the Accrued Taxes option.

Accrue Federal Tax:

Select the box to accrue federal income tax. If you enter 1, the program calculates total tax, credits the ending balance of Prepaid Federal Income Tax up to the prepaid federal income tax entered, and credits Federal Tax Payable by any tax remaining.

• The fields referenced above may be found in the Federal subsection of Balance Sheet, located under Balance Sheet, M-1, M-2, M-3 on the left-hand navigation.

Accrue State State Tax Option 1:

Selecting this box will do the following,

• Deducts the "calculated" state tax on Form 1120S , line 12. The program only accrues state taxes to ordinary income on Form 1120S , page 1. If the state tax applies to rental real estate, other rental activities, or farm activities, you must manually accrue the state tax to the federal return.
• Adds back the state tax on the state return as an ordinary income adjustment.
• Credits the ending balance of Prepaid State Tax up to the prepaid state tax entered and credits State Tax Payable by any tax remaining.
  • The fields referenced above may be found in the Federal subsection of Balance Sheet, located under Balance Sheet, M-1, M-2, M-3 on the left-hand navigation.
• Credits any state underpayment penalty to the balance sheet with the state tax.
• Carries any state underpayment penalty to Schedule M-1, line 3, if applicable.

When accruing state taxes using either option, the program automatically carries the sum of overpayments applied from (prior tax year) plus 1st - 4th quarter estimated payments to the balance sheet as prepaid state tax (before adjustment by the calculated tax). Alternatively, the unadjusted ending balance of prepaid state tax can be entered directly in the balance sheet. The program functions in the same manner with respect to city, county, and other local taxes.

• New York corporations: This entry also triggers the accrual of New York City and Form CT-3-S/CT-4-S taxes.
• Oregon corporations: This entry also triggers the accrual of Multnomah county tax.
• Kentucky corporations: This entry also triggers the accrual of Kentucky cities tax.
• Ohio corporations: This entry also triggers the accrual of Kentucky Ohio tax

Accrue State Tax Option 2:

Selecting this box will do the following:

• Credits the ending balance of Prepaid State Tax up to the amount in this field.
  • The field above may be found in the Federal subsection of Balance Sheet, located under Balance Sheet, M-1, M-2, M-3 on the left-hand navigation.
• Credits any remaining balance to State Tax Payable.
  • The field above may be found in the Federal subsection of Balance Sheet, located under Balance Sheet, M-1, M-2, M-3 on the left-hand navigation.
• Credits any state underpayment penalty to the balance sheet with the state tax.
• Does not deduct the calculated state tax from ordinary income on Form 1120S. Enter the state tax deduction in State Tax.
  • This field may be found on the Deductions screen. You may access this screen under Ordinary Income on the left-hand navigation, from there selecting Deductions. Scroll down to the Taxes subsection.
• Adds back the state tax entered in State Tax to the state return as an ordinary income adjustment, as appropriate. This amount also carries to Schedule M-1, line 6.
  • This field may be found on the Deductions screen. You may access this screen under Ordinary Income on the left-hand navigation, from there selecting Deductions. Scroll down to the Taxes subsection.
• Carries that calculated state tax to Schedule M-1, line 3, and any state underpayment penalty, if applicable.

When accruing state taxes using either option, the program automatically carries the sum of overpayments applied from (prior tax year) plus 1st - 4th quarter estimated payments to the balance sheet as prepaid state tax (before adjustment by the calculated tax). Alternatively, the unadjusted ending balance of prepaid state tax can be entered directly in the balance sheet. The program functions in the same manner with respect to city, county, and other local taxes.

• New York corporations: If you select the box, the program also accrues the New York City taxes.
• Oregon corporations: If you select the box, the program also accrues the Multnomah county tax.
• Kentucky corporations: If you select the box, the program also accrues the taxes for Kentucky cities being generated.
• Ohio corporations: If you select the box, the program also accrues the taxes for Ohio cities being generated.

Prepaid State Tax in the Federal subsection of the Balance Sheet:

Enter the ending balance for prepaid state tax. The amount is included on Schedule L, line 6, column (d). If the box is checked for Accrue State Tax Option 1, the program does the following:

• Automatically carries state estimated tax payments from the Estimates screen (under Payments, Penalties, and Extensions) as prepaid state income tax. The amount carried from there includes:
  • An overpayment applied from 2016 and
  • All 1st - 4th installment amounts designated as paid
  • When accruing state tax, an entry in this field overrides the amount automatically carried from Estimates.
• Adjust the prepaid state tax amount based on the actual tax calculated.

For example, assume the ending balance of prepaid state income tax is $1,000. Again assume that the program calculates current year tax as $800. The amount entered in Prepaid State Tax is reduced by the current year tax ($1,000 - $800 = $200). The ending balance in Prepaid State Tax becomes $200.

Similarly, if the program calculates current year tax as $1,300, the Prepaid State Tax amount is reduced by $1,300. The Prepaid State Tax account (currently $1,000) is set to zero and a liability account is created State Tax Payable for the remaining $300 ($1,000 - $1,300 = -$300).

To activate accrual options:

1. Under General, go to Miscellaneous Information, and select the Miscellaneous tab near the top of the workspace.
2. From there, scroll down to the Miscellaneous section and select the Accrued Taxes option.

Accrue Federal Tax:

For taxpayers who have selected Accrual as the Accounting Method in the Miscellaneous Info section of Client Information:

Select the box to accrue federal income tax to the balance sheet. When you select the box the program calculates the total tax, then credits the ending balance of Prepaid Federal Tax up to the amount of prepaid federal income tax, and credits Federal Tax Payable by any tax remaining.

• The fields referenced above may be found on the Assets, Liabilities, and Capital screen. You may access this screen under Balance Sheet on the left-hand navigation, from there selecting Balance Sheet.

When you accrue federal tax, the program:

• Automatically carries the total of amounts entered for overpayment applied from (prior tax year) plus any installments entered for the 1st - 4th quarters in Estimates (under Payments, Penalties, and Extensions) to the balance sheet as prepaid federal tax.
  • Alternatively, prepaid federal tax can be entered directly in the Balance Sheet.
• Reduces the prepaid federal tax by the calculated tax. If the calculated tax exceeds the prepaid federal tax, the excess becomes federal tax payable on the balance sheet.

The program also carries the tax to Schedule M-1, line 2.

Accrue State Tax Option 1:

• Deducts the "calculated" state tax on Form 1120.
• Adds back the state tax on the state return.
• Credits the ending balance of Prepaid State Tax by the amount of the actual state tax, up to the amount of prepaid state tax, and then credits State Tax Payable in the amount of any excess.
  • The fields referenced above may be found on the Assets, Liabilities, and Capital screen. You may access this screen under Balance Sheet on the left-hand navigation, from there selecting Balance Sheet.

When accruing state taxes using either option, the program automatically carries the sum of overpayments applied from (prior tax year) plus 1st - 4th quarter estimated payments to the balance sheet as prepaid state tax (before adjustment by the calculated tax). Alternatively, the unadjusted ending balance of prepaid state tax can be entered directly in the balance sheet. The program functions in the same manner with respect to city, county, and other local taxes.

• Note for New York corporations: if you select the box, the program also accrues the New York City and Form 3M/4M taxes.
• Note for Oregon corporations: If you select the box, the program also accrues the Multnomah county tax.
• Note for Kentucky corporations: If you select the box, the program also accrues the taxes for Kentucky cities being generated.
• Note for Ohio corporations: If you select the box, the program also accrues the taxes for Ohio cities being generated.

Accrue State Tax Option 2:

• Credits the ending balance of Prepaid State Tax using the calculated state tax up to the amount of prepaid state tax, and credits State Tax Payable in the amount of any excess.
  • The fields referenced above may be found on the Assets, Liabilities, and Capital screen. You may access this screen under Balance Sheet on the left-hand navigation, from there selecting Balance Sheet.
• Includes the "calculated" state tax on federal Schedule M-1, line 5 as an expense recorded on the corporation's books but not deducted on the return.
• Includes the "deducted" state tax entered in State Tax (Automatic if Using Tax Accrual Option 1) on federal Schedule M-1, line 8 as a deduction on the corporation's tax return not charged against book income.
  • This field may be found on the Deductions screen. You may access this screen under Deductions on the left-hand navigation, from there selecting Deductions. Scroll down to the Taxes subsection.

When accruing state taxes using either option, the program automatically carries the sum of overpayments applied from (prior tax year) plus 1st - 4th quarter estimated payments to the balance sheet as prepaid state tax (before adjustment by the calculated tax). Alternatively, the unadjusted ending balance of prepaid state tax can be entered directly in the balance sheet.  The program functions in the same manner with respect to city, county, and other local taxes.

• New York corporations: if you select the box, the program also accrues the New York City and Form 3M/4M taxes.
• Oregon corporations: If you select the box, the program also accrues the Multnomah county tax.
• Kentucky corporations: If you select the box, the program also accrues the taxes for Kentucky cities being generated.
• Ohio corporations: If you select the box, the program also accrues the taxes for Ohio cities being generated.

Prepaid State Tax on the Assets, Liabilities, and Capital screen:

Enter the ending balance for prepaid state tax.  The amount is included on Schedule L, line 6, column (d). If you select one of the Accrue state tax options, the program does the following;

• Automatically carries state estimated tax payments from Estimates (under Payments, Penalties, and Extensions) as prepaid state tax. The amount carried from Estimates is the aggregate amount for all states:
  • An overpayment applied from 2016 and
  • All 1st - 4th installment amounts designated as paid
  • When accruing state tax, an entry in this field overrides the amount automatically carried from Estimates.
  • Adjusts the prepaid state tax amount based on the actual tax calculated.

For example, assume the ending balance of prepaid state income tax is $1,000. Again assume that the program calculates current year tax as $800. The amount entered in Prepaid State Tax is reduced by the current year tax and the ending balance in Prepaid State Tax becomes $200 ($1,000 - 800).

Similarly, if the program calculates current year tax as $1,300, the Prepaid State Tax amount is reduced by $1,300.  The Prepaid State Tax account (currently $1,000) is set to zero and a liability account is created "State Tax payable" for the remaining $300 ($1,000 - $1,300 = -$300).