Nobody wants to think or talk about taxes. Taxes can be very complicated, since they are based on various possibilities and locations. Even though calculating taxes can look like a complicated task, QuickBooks Online can set up Sales tax very conveniently.
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In this context, we will first talk about what is Sales Tax and then we will talk about some crucial points concerning them. Then we will discuss How to Set up Sales Tax in QuickBooks Online.
Note: We will also talk about filling sales tax and then getting the reports related to Sales Taxes.
What is the Definition of Sales Tax?
Let’s begin by defining the real meaning of Sales Tax. In simplest terms, a Sales Tax is a type of tax that is levied by the government on the sale of particular goods and services. Such taxes are given when any such sale is done. The tax is accumulated by the seller and then it is given to the government.
Furthermore, such taxes are applicable to the customer who gets the final product. Since there are supply chains in the present economy, every sale of product needs a Sales Tax.
How QuickBooks Online Calculates Sales Tax
You are taking the uncertainty out of sales tax collection. You won’t need to manually calculate each tax rate if you charge sales tax for your goods or services. All of it may be handled by QuickBooks. This is how it goes. A new sales tax system is now being implemented for all QuickBooks users. Check to see if you may move from manual to automated sales tax if you currently do so. Don’t worry if there isn’t a switch available. You should soon be able to access it.
On Each Sale How QuickBooks Calculates the Correct Tax Rate?
Based on the following QuickBooks automatically calculates the total tax rate for each sale.
- What you sell
- Your customer’s tax-exempt status
- Where do you ship and where do you sell
Based on Your Customer’s Tax Status
For example, churches, schools, and other nonprofit organizations are free from paying sales tax. After that, you can set up your customer as tax-exempt. Because rules are not the same everywhere in tax-exempt regulations, QuickBooks will sometimes have to calculate sales tax for tax-exempt customers. Just make sure your customers’ addresses are accurate for each transaction, and map your items to the proper tax categories. Then, based on what you sell and the address of your consumer, QuickBooks applies the proper tax-exempt laws.
Based on Where you Sell or Where you Ship
The sum of the state and local sales tax rates, which may include city, county, and/or district rates, is the total sales tax rate. You don’t need to remember every price you need to charge. Based on the place of the sale or the ship to address you enter on an invoice or receipt, QuickBooks performs all of those actions.
Note: Even if you sell to or ship to a different address inside your state, certain states require sellers to collect tax based on business location. Wherever you run your business, QuickBooks is familiar with the tax laws.
Do you Sell out of Your State?
You typically do not have to charge taxes for transactions that take place outside of your state if your company has no physical presence there. However, if your business has a connection to another state’s economy, you are a remote seller. You impose tax rates at the location where your goods are heading when you sell to that state. It is advised to speak with your accountant because this could get a little complex.
Based on Your Service or Product’s Tax Category
State tax laws may differ from one state to the next. Anything you sell can have a tax category assigned to it. This informs QuickBooks of the exact products you are selling and the amount of tax you should charge.
Special Tax Scenarios
Even when the rules become a little complex, QuickBooks still calculates your sales tax. You will be provided with a simple sales tax guide, or you may speak with your accountant or visit the sales tax page for your state if you want to learn more about sales and use tax in the US.
See Automated Sales Tax in Action
- Verify the total sales tax at the bottom of your Invoice or Sales Receipt as you create it.
- Select See the math or the total tax amount. The Let’s compute your tax rate page, where QuickBooks provides you with a detailed breakdown of the sales tax will get open.
Set up Where you Collect Sales Tax in QuickBooks Online
To accurately calculate sales tax and returns, QuickBooks Online keeps track of your state’s tax regulations. Simply inform QuickBooks about the location where you collect sales tax. When you first set up automated sales tax, this will happen.
Note: The automated sales tax is the topic of this article. Check to see whether you can switch to automated sales tax if you still use manual sales tax. If you don’t now have the choice to switch, you should have it in the future.
Set up Where You Collect Sales Tax
- Begin by going to Taxes and then you have to select Sales Tax.
- Now you have to choose Use Automatic Sales Tax.
- If you updated your business information in Settings⚙ then you will see your business name and address name here. If not, then in the address fields you have to enter your business address and then select Next.
- If you want to collect sales tax outside of your state then you have to select Yes or No.
- If you chose yes, then enter another state where you collect sales tax in the Select an Agency section, or you can use the ▼dropdown to view all available cities and states. Repetition is required for each city, country, and state where sales must be collected.
- Now you have to select Next. By selecting X you have to close the window or you can go to Create Invoice.
- Select how often you file sales tax, in the Filing Frequency ▼dropdown menu, when you are asked.
- If you collect sales tax for more than one location then you have to select Next Agency and for each repeat selecting the filing frequency.
- At last, you have to select Save.
Add more Tax Agencies
Know how to add more tax agencies and filing frequencies later:
- First you have to go to Taxes and then you have to select All Sales.
- Now you have to select Sales Tax Settings.
- Then you have to choose Add agency.
- Select a filing frequency and an agency. Next, specify whether you wish to report using cash or accrual and the start date.
- At last, You have to select Save.
QuickBooks will automatically use your business address as the sale location on your next invoice or sales receipt. You can always change the transaction’s location if necessary.
How to Set up a Particular Sales Tax in the QuickBooks Online?
Here are the steps to set up Sales Tax in QuickBooks Online:
Step 1: Press the Taxes link in the given Navigation bar.
Step 2: Now, press the Sales Tax on the page that is on the right side.
Step 3: Now, navigate to the Taxes link in the given navigation bar and now press the Sales Tax link seen on the side menu.
Step 4: Now press the button that says Set up Sales Tax. It displays on the Sales Tax Page the first time the Sales tax page is opened. This will open a Sales Tax wizard in a new screen.
Step 5: Now, in the Setup Sales Tax wizard, add the physical address of your Particular Company into the Particular Businesses Address field in order to analyze the default Sales Tax Institution.
Step 6: Now press the Next button. Then Continue.
Step 7: Now in the Setup Sales Tax wizard, you will be prompted if you require Sales Tax for location outside the periphery of the company address.
Step 8: Now, just choose the Yes or No option as required.
Step 9: If you choose No, then the related Tax Agency will be displayed on the screen.
Step 10: If you choose yes, then the previously chosen tax agency will be displayed below the screen together with a drop-down named Select an Agency.
Step 11: Use the drop-down Choose an agency to choose the tax agency for the different counties, states, districts, or agencies for which you may have Accumulated Tax.
Step 12: As you choose each one, they get added to the Particular Tax Agency List.
Step 13: In order to Delete a Tax Agency, if your choose one by mistake, you do not require, press the Delete Button that is on the right side of the Agency Rows.
Step 14: Choose All Tax Agencies for whom you require to Accumulate the Sales Tax.
Step 15: After completing, press the Next button and then Continue.
Step 16: QuickBooks Online will Calculate the Concerning Tax and then completes automatically the Sales Tax Setup.
Step 17: In the final window, you can press the button that says, Create Invoice in Order to make an invoice if required to check the Sales Tax Functioning or you can press the X button on the upper-right side of the window to close the particular Set up Sales Tax Screen.
Step 18: QuickBooks Online then notifies you to Complete the Setup. It will open a How do you File Sales Tax? Screen for every agency where you need to choose the filing frequency to File Sales Tax.
Step 19: Choose your preference from the Drop-Down Filing Frequency. Now press the Next button if required in order to move the Following Agency.
Step 20: When completed, press the Save button in order to complete your changes.
How to Pay Sales Tax in QuickBooks Online
When you set up sales tax QuickBooks automatically keeps track of what you owe and when it is due. You have to record your payment and pay your taxes outside of QuickBooks. This blog is about how to pay sales tax in QuickBooks Online. You will get important points mentioned below:
- To begin, go to the sales taxes and enter, and here you will any taxes you owe
- If your tax is overdue then you will need to change to this range to find them.
- As long as you enter the correct sales taxes and your books are accurate then your tax amounts will be accurate.
- If you need to adjust your sales tax settings then select view return and you will see exactly how much you owe.
- Click on view tax liability report, to review your taxable and non-taxable invoices, precedes, etc.
- You can add an adjustment, by entering the reason for the adjustment, and the date and then selecting an account. If you have more money then select the expense account and if you owe less money then select an income account. Now you are ready to pay your taxes online.
How to Set up, Edit, and Deactivate your Sales Tax Rate and Settings
Add or Edit Sales Tax Rates and Agencies
1. Add a Tax Rate and Agency
- You have to select Sales tax by going to Taxes.
- Select Add/edit tax rates and agencies from the Related Tasks list on the right.
- Choose New, then select the single or combined tax rate.
- Enter the tax’s name, the agency you pay, and the rate’s percentage. If you only pay one rate to a single agency, use that rate.
- Lastly, you have to select Save.
2. Add a Combined Rate
Consider setting up a combined tax rate if you have to track sales tax for more than one taxing authority. For example, you might be required to report and pay sales tax to your state, county, and city.
Things to know
- Your consumer will only see one tax rate on their sales form if you use a mixed tax rate. The sales Tax Center, however, keeps track of and splits the proper sums to each agency.
- A combined tax rate might have up to 5 components.
To Add a Combined Tax Rate:
- First, you have to go to taxes, then you have to select Sales tax.
- Select Add/edit tax rates and agencies from the Related Tasks list on the right.
- Then you have to select New.
- Simply choose the Combined tax rate.
- After that, you have to enter a name for the combined rate and the various sales tax requirements names.
- If more than two rates need to be added, choose Add Another Component and then click on Save.
Once You are Done, a Few Things will Happen:
- In the Sales Tax Rate and Agencies list, the new rate appears.
- Now you can choose the new combined rate in forms such as invoices.
- In the Sales Tax Owed list in the Sales Tax Center, you can view the amounts owed to each agency.
- You can view the Sales Tax Liability Report.
3. Edit a Tax Rate
Things to know:
- If you need to make changes to a sales tax rate, you can edit it.
- Only the component rates are editable.
- Change the component rates of a combined rate to update it.
To Edit a Tax Rate:
- First, you have to select Sales tax by going to taxes.
- Then select Add/edit tax rates and agencies that are on the right under the Related Tasks lists.
- After that, you have to choose the rate that you want to change and then select the Edit option.
- Then you have to enter the new rate and also you can change the agency name.
- After completing you have to select Save.
Once You are Done, a Few things will Happen
- Only new transactions are eligible for the new rate.
- The new rate is applied to new transactions created with dates in the past.
- The earlier rate is no longer usable after editing a rate.
- Transactions already made at the older rate are still valid. Unless you specifically choose a different sales tax rate when editing the transaction.
- New transactions made using recurring templates that make use of the modified component are subject to the new rate. The earlier rate and transactions already completed using the template are unchanged.
- Reports provide information on both rates (before and after).
4. Edit a Tax Agency’s Name
Things to know:
- The Tax Rate field cannot be changed.
- Deactivate the current tax name and rate if the rate needs to change.
- Create a new tax with the desired rate after that.
To Edit an Agency’s Name:
- Select Sales tax by going to Taxes.
- Then you have to select rename which is under the agency name that you want to edit.
- After that, you have to enter the new name, and then select Save.
Configure Sales Tax Settings
1. Change the Sales Tax Center Filter
- Begin with going to Taxes and then select Sales tax.
- Then from the Start of Year and Accounting basis drop-down, you have to choose your preferred filter.
2. Edit Sales Tax Settings
By editing sales tax settings you can turn sales tax on or off.
- Start by going to Taxes, then you have to select Sales tax.
- Then select Edit sales tax settings, which is under the Related Tasks list on the right.
- If you charge sales tax then select Yes.
- Set the following options, this is optional:
- First, Set a Default Tax Rate. In new sales forms, the default rate is automatically selected. If necessary, you can select a different rate. QuickBooks Online remembers the rate you choose for a particular customer and overrides the default rate if you select a different rate for that customer.
- To mark all new customers are taxable, choose Mark. As a result, the new customers you bring on board are not tax deductible. You can change this setting for individual customers in the Tax Info section of each customer record.
- Select Mark all new products and services are taxable. This means items you add to a form have the Tax column already selected. You can clear individual items in a form if you don’t need to charge sales tax.
- If you don’t charge sales tax, choose No. If you have already applied sales tax to earlier transactions, you must first take that money back. Otherwise, you won’t be able to disable sales tax.
- Lastly, you have to select Save.
3. Deactivate a Tax Rate
- First, you have to select Sales tax by going to Taxes.
- Then you have to select Add/edit tax rates and agencies that is on the right under the Related Tasks lists.
- After that, you have to choose a tax rate name and then you have to select Deactivate.
- Lastly, you have to select Continue.
How to Track Sales Tax on Purchases from Vendors
For some of the products and services you provide, you might need to collect taxes. You can quickly track and send these taxes to the proper tax collecting agency by using QuickBooks Desktop to keep an accurate record of them. Bills, cheques, and purchase orders are examples of non-sales transactions that require manual tracking of sales. QuickBooks is not made to automatically track sales tax on non-sales transactions.
Track Sales Tax on Purchases as an Expense (not to be paid later)
- Create an account for expenses.
- Click Chart of Accounts from the Company menu.
- Right-click anywhere in the Chart of Accounts box and then select New.
- Select Expense in the Choose Account Type window and then click Continue.
- Click Save & Close after entering the Account Name and other details
- When creating a transaction (such as a bill) in which you will be tracking sales tax, enter the bill normally and then choose the expense account you created in step 1 under the Expenses tab.
- Put the sales tax amount in the Amount column on this line (this will need to be calculated manually).
- After choosing Recalculate, make sure that every detail of this transaction adds up to the correct total.
Track Sales Tax on Purchases as a Liability (to be paid later)
- You have to create an Other Current Liability account.
- Firstly, you have to click Chart of Accounts from the Company menu.
- Right click anywhere in the Chart of Accounts window and then click New.
- Click the Other Account Types drop-down menu in the Choose Account Type window and then you have to select Other Current Liability.
- Then you have to click Continue.
- Enter other details and the Account Name and then click Save and Close.
- Enter the bill as usual, but choose the Liability Account created in step 1 under the Expenses tab when creating a transaction (like a bill) in which you will be tracking sales tax.
- Enter the sales tax amount in the Amount column on this line (this will need to be calculated manually).
- After choosing Recalculate, make sure that every detail of this transaction adds up to the right total
- When it comes time to pay this sales tax, you can check the Chart of Accounts to see the accrued liability.
- Regular checks can be used to pay this amount.
Does the information provide is adequate for you to understand how to set up sales tax in QuickBooks Online?
Setting up Sales Tax in QuickBooks is essential for the smooth functioning of your business. This is why we have mentioned in detail how to do it. Still, if you find it confusing or complicated you can get in touch with our professionals.
Our Dancing Numbers team of experts has every knowledge and tool to help you in your crisis related to QuickBooks. To get our assistance and reach out via LIVE CHAT.
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Frequently Asked Questions (Faqs)
How to Record Payment in Your Particular QuickBooks Online?
Here are the steps to record payment in your particular QuickBooks Online:
Step 1: Select filed from the drop-down All returns.
Step 2: Choose Record Payment from the given drop-down in the particular Action column.
Step 3: Choose the perfect Payment type.
Step 4: Add the Payment date.
Step 5: When the payment is made, it will be visible in the Account History.
How to Deactivate a Particular Tax Rate in QuickBooks?
Here are the steps to deactivate a particular Tax rate in QuickBooks:
Step 1: First, you need to choose taxes.
Step 2: Now you need to select Add or edit tax and the particular agencies.
Step 3: Select the name of the tax rate, and then select Deactivate.
Step 4: Finally, choose the Continue button.
What are the Three Important Concepts one must know with Sales Tax?
With Sales tax, there are three important concepts one must know. They are:
Excise Taxes: Some goods may not have sales tax on them since they are clothes, food materials, while other items have crucial taxes since they are treated as vices. Taxes on such items include alcohol and cigarettes.
Nexus: Nexus is concerned with the physical attendance in authority which means that you must pay sales tax in that jurisdiction. This is significant especially in online sales where the customers can be from any geographical location.
VAT: Value-added Tax is generally put on products in a particular supply chain when a value is fixed with them.