Accruing Income Taxes

When you’re preparing your month-end financials, are you including an accrual for income taxes? Assuming your business is profitable, you will most likely have to pay income taxes at the end of the year. Instead of it being a surprise at that time, it’s best to accrue income tax expense on a monthly basis, which will allow for a more accurate liability section of your balance sheet. In Canada, if your business qualifies for the small business deduction, you will be paying 9% federal tax. Your province will have its own small business rate, as well. In Manitoba, it’s actually 0%. At the end of each month, take your pre-tax profit and multiply it by the combined federal-provincial tax rate. The product will be your accrued income tax expense for the month. You can then record a journal entry where income tax expense is the debit and income tax payable is the credit.