How to record Corp tax refuns?

[taxxcpa]

How do you record a corporate tax refund (Form 1120)?
Schedule M-1 has a place to record tax expense as a non-deductible expense.
I don't see any place to record a tax refund as a non-taxable income.

I suppose you could show it as income recorded on the books not included in taxable income. It really isn't income. Another way would be to record it as a negative tax expense on the line for non-deductible expenses.

I can't find anything with a quick search of the Tax book.

[ChEAr$]

How do you record a corporate tax refund (Form 1120)?
Schedule M-1 has a place to record tax expense as a non-deductible expense.
I don't see any place to record a tax refund as a non-taxable income.

I suppose you could show it as income recorded on the books not included in taxable income. It really isn't income. Another way would be to record it as a negative tax expense on the line for non-deductible expenses.

I can't find anything with a quick search of the Tax book.

naturally it has nothing to do with an expense, since federal taxes are not deductible on the federal return.

Before closing the books end of year you do the tax return and accrue the tax as an expense on the books of course I place it in"other income/expense" after net profit. Then any overpayment of tax becomes a current asset; or anything owed in addition to payments already made, a current liability.

Your state mileage may very. (grin

[Uncle Sam]

How do you record a corporate tax refund (Form 1120)?
Schedule M-1 has a place to record tax expense as a non-deductible expense.
I don't see any place to record a tax refund as a non-taxable income.

I suppose you could show it as income recorded on the books not included in taxable income. It really isn't income. Another way would be to record it as a negative tax expense on the line for non-deductible expenses.

I can't find anything with a quick search of the Tax book.

Why not pick it up as an increase to retained earnings on the M2?

[taxxcpa]

Retained Earnings

Why not pick it up as an increase to retained earnings on the M2?

That is exactly the answer I've been looking for. Thanks.

On the client's books, I debited cash and credited retained earnings.

[ChEAr$]

That is exactly the answer I've been looking for. Thanks.

On the client's books, I debited cash and credited retained earnings.

Ah, I didn't pick up on the fact that corporation is on the cash basis.

[taxxcpa]

Cash basis

Ah, I didn't pick up on the fact that corporation is on the cash basis.

I don't think a tax refund would be handled differently for cash vs accrual basis accounting. Tax expense is not deducted on the tax return, but IS deducted as an expense on the books.

The reconciliation of retained earnings per books with the retained earnings for tax purposes would involve an increase in retained earnings from a non-income source under both methods of accounting.
If the corporation was on the accrual basis, then the tax may have been accrued and expensed in 2009 rather than in 2010--and would have resulted in an NOL carryback based on the 2010 loss.
If they were on the cash basis the tax would have been expensed (on the books) and paid in 2010.

In either case the refund would have been in 2011 after the 2010 return was filed. Either way it would increase the 2011 Retained Earnings by something other than income.