February 10, 2020

Set Up Your Sales Taxes in QuickBooks, Part 2

QuickBooks Desktop
Ronald B. Allen

Once your sales taxes are set up, you can use them in reports and transactions.

Last time, we went through the process of how to set up sales taxes in your QuickBooks. As you will recall, the stop is at Edit | Preferences | Sales Tax to be certain that your QuickBooks software is properly set up for sales taxes. And, you will need to know the precise rules that apply to sales taxes in your state and locale. The Department of Revenue or the Department of Taxation will have this information posted on their website.

In QuickBooks, state sales taxes are treated as Items. Set them up as you would do with product records. For local sales taxes, you will set up Sales Tax Groups. And you will assign Items to these as well as Tax Codes to customers.

Using Sales Taxes

You will use sales taxes in transactions when they are set up. Although it is possible to set them up “on the fly,” we suggest that you deal with this important task beforehand.

QuickBooks will apply the Sales Tax Group or Sales Tax Item to each customer as you invoice them. QuickBooks shows you the others that could use as well.

Begin the processed by creating your invoice. When you get to the Tax column for the first line, you will notice that QuickBooks has already taken care of assigning Tax or Non having read the information in the item’s record. QuickBooks allows you to put taxable and non-taxable items in the same client invoice. And, QuickBooks lets you put in a new sales tax “on the fly,” working from the invoice itself. Just click the Tax column and choose Add New.

Make certain that you don’t pay sales taxes when you do not have to. (When Non is chosen) You will typically not need to pay sales taxes in these situations:

• Non-profit organizations

• Out-of-state sales

• Items which the customer will re-sell

Note: QuickBooks lets you set up specific tax codes for the following situations:

Use OOS for sales out-of-state

Use LBR for labor

Use NPO for not-for-profit organizations

QuickBooks lets you add descriptive sales tax codes in addition to the standard Sales Codes, Tax and Non.

Always be careful when setting up and using your QuickBooks tax classifications. As we noted previously, these be found if you are ever subject to a sales tax audit.

After you have entered every invoice line item, check at the bottom of the screen right above the Total and below the table that contained invoiced items. You will see that QuickBooks has calculated the sales tax that is due by using the Sales Tax Group or Item that you assigned during the customer setup and placed it in the Tax field. And, you can see on the left the actual rate that QuickBooks applied.

To the left again you can see the drop-down list that contains the correct Sales Tax Group or Sales Tax Item. Just click the down arrow to see a list of other options. Here is where you will see the Customer Tax Code in the left lower corner of the screen.

Sales Tax Center

Manage Sales Tax Window

When it is time to pay your sales taxes, open up the Vendors menu and choose Sales Tax. | Manage Sales Tax. When the next screen opens, you will be able to>

• Find Sales Tax Preferences

• Generate the tax reports that help you fill out any required forms

• Visit any related screens

The two reports that you will have to run are these.

Sales Tax Liability

This shows total sales, taxable amounts, the rates applied, taxes collected, and amounts of sales tax due to each taxing agency.

Sales Tax Revenue Summary

This gives you a breakdown of your total sales by taxable and non-taxable amounts.

Both of these reports can be customized such as for filtering by Sales Tax Code.

Walking a Fine Line

When you collect sales taxes on taxable items and submit these taxes to the proper agencies, you are always walking a fine line. You do not want to charge your customers for taxes that they do not owe. And, you never want to end up paying out of your own pocket for taxes that you failed to invoice.

When you use QuickBooks for setting up and dealing with sales taxes, you will get it right from the start. If you would like to handle sales taxes efficiently and avoid having to backtrack and unravel mistakes in your records, contact us at Exigo Business Solutions for a consultation.

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