How to account for corporate tax

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First, create two accounts in your Chart of Accounts:

  • Income Tax Payable under Liabilities
  • Income Tax Expense under Expenses

Then create new journal entry to account for income tax expense, let’s say the income tax is $1,000

  • Debit $1,000 to Income Tax Expense account
  • Credit $1,000 to Income Tax Payable account

This will bring your $1,000 into Profit & Loss Statement.

When you pay income tax to tax authority, it’s simple cash payment transactions that will have to be categorized as Income Tax Payable so your tax liability comes to zero once the tax is actually paid.