What are tax accounting classes?

Accounting question - Member Draws and Tax Expense?

• Quick background: I am the finance manager for an LLC. The LLC charter requires the LLC to pay the members taxes caused by the LLC. I am having a hard time accounting for the quarterly tax payments. These need to have a net effect on the following accounts: Cash - decreased (asset) Tax Expense - Increase (expense) Member Tax Draw - Increase (equity) Of course, for double entry accounting, I need a fourth account with a net effect. I've been scratching my head over T accounts for two hours now, and can't seem to figure out where to place it. What account should this be? It doesn't seem like Retained Earnings is correct, as the Member Tax Draw will reduce that at year end. In addition to the above accounts, I've been attempting to route the money through a Current Year Tax Payable account (liability) and Accounts Payable (liability, of course). tl:dr - I need to pay the members for their taxes caused by the company, and have it show up as both an expense on the P&L and a member draw on the Balance Sheet while still getting them the cash. How can this be done?

• Answer:

  I'm not tax expert, but my thinking of how LLC's and partnerships work is that the taxes are the expense of the partner, but based on the LLC profit/loss. Perhaps your charter is written so that it assures the members have the liquidity to pay those taxes and provided for distributions to the members for that. If my assumption is correct, I'd think you can Debit Member Draw which decreases equity, and credit cash. I don't think you need to debit tax expense. Just note the documents that the reason for the distribution is to satisfy the charter requirements. To your "in addition" question, I don't think its needed this year since its not an expense, but I guess you can debit Member Draw and credit A/P at the end of the year, then just pay the A/P next year.