Property Tax Journal Entry

Property tax is a regressive tax imposed by local governments on the value of property, such as real estate. This tax is paid by the owners of the property and can vary from jurisdiction to jurisdiction.

Property tax funds are primarily used to support local government services such as schools, law enforcement, and other public works projects like water and sewer improvements.

Generally, property taxes are calculated based on the assessed value of the property at a given point in time, which can be updated periodically depending on the local laws surrounding taxation.

Property taxes are imposed by numerous authorities in addition to state and federal governments. Local governments use property taxes to sustain regular operations and fund new infrastructure efforts. In terms of economic impact, property taxes have specific effects on both individuals and businesses.

More valuable properties pay more taxes than less valuable properties. Property tax bills are usually calculated and sent out to homeowners once per year in most jurisdictions. Payments must typically be received within a specified time frame, often resulting in penalties if not paid on time.

It is recorded as the expense of the year. In some countries, the government collects property tax at the end of the year. The accountant has to allocate the property tax to each month base on a straight-line basis. It has to record the equal expense each month.

Journal Entry for Property Tax

The company pays the property tax on an annual basis, and it is recorded as an expense on the income statement.

The journal entry is debiting property tax expenses and crediting cash.

Account	Debit	Credit
Property Tax Expense	XXX
Cash		XXX

Property tax expense is recorded on the income statement as the current year’s expense.

Note: It will be a bit tricky for the monthly income statement.

If the company prepare a monthly income statement, the property tax needs to be accrued on a monthly basis and reversed when making payment to the government.

If the property tax is paid in advance, it must record as assets and amortize over a period of a year.

The objective is to ensure the property tax expense is allocated equally during the year.

Example

Company ABC owns several properties in the country. The company has spent $ 8,000 on property tax to the local government. Based on local law, property tax is paid annually in December. Please prepare journal entry for property tax.

The company owns the property and records them on the balance sheet. So the property tax is recorded as an expense of the company’s financial statement.

It is the annual income statement, so the whole amount will be recorded as an expense for the year.

The journal entry is debiting property tax expense $ 8,000 and crediting cash paid $ 8,000.

Account	Debit	Credit
Property Tax Expense	8,000
Cash		8,000