Most people get their property tax bill and book the entire amount as an expense in the month they received it. This leaves the numbers badly misaligned in terms of matching the expense with the right period. This is why it’s important to know how to accrue estimated property taxes in QuickBooks Online.
You might not notice much difference here on a standard profit and loss. As you’ll see in the video above, it looks terrible when you analyze that profit and loss by month. January will probably show a huge loss for the month, and the rest of the year will show overstated profits (or understated losses). This is because we recognized all of the property tax expense in a single month.
The process to accrue estimated property taxes in QuickBooks Online is simple.
Use last year’s tax bill as an estimate (or increase it, if that is your expectation for the current year. Then record a recurring entry each month (see video for how).
When you get your tax bill, book an adjustment for Dec. The effect will be to change your estimated total property tax expense for the year to the correct total.
You do not need to edit the monthly entries. One entry in December for the difference is all you need. So on your monthly profit and loss, December will look a little different than the other months.
My trial balance adjustment template can help you figure the journal entry to get the balance right.
Any payments you make toward the property taxes should be recorded directly to Property taxes payable. Also, if you’re entering a bill so you can pay the property taxes later, then record that bill to Property taxes payable. If you post payments, or bills to the property expense account, you be overstating your property tax expense, and overstating your property taxes payable.
You accrue property taxes in QuickBooks Online for better matching of expenses in the right periods. This will also “normalize” the data. You should analyze your profit and loss statement on an accrual basis, totaled by month, so you can see what’s really going on with your business.