What is an Income Tax Payable?

Mary McMahon
Mary McMahon

An income tax payable is an entry on accounting disclosures indicating the amount of money due for income tax within the next year. Many companies establish an income tax payable account for the purpose of setting aside funds for paying income taxes. The income tax payable is considered an outstanding financial liability. Individuals are also required to keep track of their income for the purpose of filling out tax declarations and paying their income taxes appropriately.

An audit may be conducted if the government and a company cannot agree on the total amount of taxes payable.
An audit may be conducted if the government and a company cannot agree on the total amount of taxes payable.

Determination of a company's income tax payable is based on revenues for a given tax year, with an adjustment for certain types of expenses and credits. When this number is calculated, it is used to determine a company's tax bracket and the total percentage owed in tax. This becomes the income tax payable, and is due within a set period of time.

Companies commonly pay income taxes periodically, typically every quarter or month. By paying taxes over the course of a year, companies can distribute the expense. The pre-paid taxes will be applied to the total income tax payable to determine whether the company still owes funds, or if the government needs to refund some of the taxes paid. Setting aside funds in a specific account will also allow companies to save up over the course of a year so they are prepared for the date when the tax bill becomes due.

When tax bills are sent out, they indicate when the funds are due and how they can be paid. It may be possible to receive an extension if a company cannot afford its income tax payable. Tax agencies tend to be more inclined to offer extensions in cases where companies have been making regular tax payments and can demonstrate a payment plan for repaying their taxes without simultaneously endangering their ability to pay the next year's taxes.

There may be cases where there is a dispute between the company and the government about the total due for taxes. If the two cannot agree on an amount, an audit may be conducted to examine a company's accounts and bookkeeping methods. Accountants and tax attorneys are typically involved in this process. They confirm that the audit is conducted fairly and within the confines of the law and assist with the gathering and submission of information to tax authorities. Such disputes can usually be worked out amicably so the company can settle its tax bill and resume normal business activities.

Mary McMahon
Mary McMahon

Ever since she began contributing to the site several years ago, Mary has embraced the exciting challenge of being a wiseGEEK researcher and writer. Mary has a liberal arts degree from Goddard College and spends her free time reading, cooking, and exploring the great outdoors.

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Discussion Comments


@Nepal2016 - You are absolutely right, but there is hope! At least these days, there is all kind of accounting and income tax software that can help you. As long as you keep up with your entries into your accounting program, you should be able to export all of that data into the tax forms when the time comes.

Or better yet, throw it on a disc and take it to your accountant. Best money you'll ever spend. You will probably save money on taxes, and you won't have the headache of actually having to fill them out yourself.


@Veruca10 - I know just what you mean. As a sole proprietor, it is especially annoying for me because I am a one-man show here. I do all of the actual work, the sales and marketing, customer service and follow-up, and then I have to go back to the office and take care of all the paperwork.

At least with a bigger company you can hire people to take care of that. Every time my business grows to include another job to do, I can tell you who's going to be doing it - me.


Taxes are one of the biggest headaches for a company. Not necessarily even paying them, although that's never fun. But the endless record keeping, filing of income tax forms, and dealing with the tax agencies can really wear you out.

Nobody looks forward to April 15th, but for businesses it's a lot worse, since they generally have to file four times a year. Also, they usually have a lot more paperwork to keep track of than most individuals. No wonder accountants make so much money.

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