I believe that it is preferred to report taxes collected as income when collected, and then deduct them as an expense when paid to the taxing authority.

The difference is that assuming that you are on a  "cash basis" and a calendar year basis, you might collect taxes in December, but not pay them until January. If you are on a fiscal year basis, the same principle would apply. If you are not on a cash basis, you should get advice from an accountant.

I would not, however, worry about it too much At the very worst, if you are audited, they may recalculate your taxes, and you may have a small refund, or a small amount (plus interest) due. On something like this, they would likely only want to "correct" your bookkeeping, not punish you.

Nonetheless, I am sure that an accountant would prefer that if you are on a cash basis, you repot all monies received as "income" and all monies paid as "expenses".

Steve