How to Track Sales Tax as an Expense in QuickBooks?

You can easily track your sales tax on the selling of goods as expenses by creating expense account for those goods in QuickBooks and then select that expense account to keep track of your tax payments which you have made to the government for those goods. You should keep in mind that you will always create expense account within the chart of accounts not outside it. The process of tracking sale tax of your expenses is not automatic.

You have to select the account which you created manually and then track the record of your expenses for each transaction. Once you are done with this, you create the record then you can see summary of all expenses and payments made towards the taxes.

Sale Tax

A sale tax can be defined as a tax which is imposed by the government on the every sale of goods and services whether inventory or not. You have to pay these taxes when sale is made. It is the duty of the seller to collect tax and then pay it to government.

Creating of Expense Account

It is very easy to create an expense account in QuickBooks. For creating expense account you have to follow the following steps:

• First you have to select the list menu and from the drop down menu of list click Chart of accounts.
• Now click on Account button and then click on new.
• Now choose for the option expense account and click Ok.
• Enter the name of your expense account. The name will help you to find your account from the list of accounts.
• Now click on Continue Button.
• Hit on button named Tax line and then select the appropriate tax line for your company from the drop down menu.
• Now in after all changes you have to save your file and move forward, so click on save then OK Button.

Tracking of Sale Tax Expenses

After creating expenses account, now we have to track the sales tax of the expenses. The following are the steps of tracking.

• First you have to create the normal transaction and then click on the expenses tab.
• To track tax payment you have to select tax expenses account which you created.
• In the amount column showing in front of you on your screen enter the amount in it.
• Select recalculate option and check the total correct appears.
• Now you can view and track you tax by opening your tax account that you created.

Setting up of Sale tax in QuickBooks

Double Check Your Business Address:

It is the important step because QuickBooks need this to set up tax agency and rates for you.

• Click on the taxes button on the left side and then click on sale tax.
• Select the option to set up sales tax.
• Add business address in set up and if you already done so then it will show up on screen then there is no need of adding.
• Review all the changes and click on next.

Paying of Tax to other Tax Agencies:

It is necessary to tell QuickBooks that if you are selling your products outside of your country/state/city because there are different rates for the different places. In order to provide the information to QuickBooks follow the following steps:

• Select the one option from two i.e yes or not.
• If yes then add the tax agencies for which you pay taxes.
• Once you completed the above step then click on next button.

Time Interval of File:

In this you have to select the frequency so that QuickBooks remind you when it’s the time to file. And if you are not sure about the date of your file then check your tax agency website in order to know your file frequency. Following are the steps which are to be performed.

• First click on filing frequency and then choose how often you file from the option from drop down menu.
• Now add the start date of your file and click on Ok.

Now you will ready to set up. Now the sale tax filed always show up on your invoices, sale receipts, estimates and credit memo.

Applying of Sale Tax

You can apply the sale tax by performing the following steps:

• Add you’re all the products and services on the form.
• For each tax item check the box under the tax column.
• Now update the sales form by clicking on any white space.
• In the bottom right of your system select the appropriate sales tax.
• Sometimes if you sell to tax exempt customers then you can choose not to collect sales option from them but by default all the customers are available.
• If you want to change this setting you have to click on invoices then customer tab from the drop down menu.
• Find and click on tax info tab in edit drop down menu and click on edit window and check for the box to exempt their account.

Important Point: If you have already charged sale tax on your early transaction then you won’t be able to disable sale tax feature without removing the sale tax from the older transaction.

Tracking of Sale Tax on Purchase from Vendor:

For this you have to manually track sale tax on non sales transaction like bills, checks and purchase order. QuickBooks does not support the feature of track sale tax on non sale transaction.

Tracking of Sales Tax on Purchase of the Expense

• Create Expense account
  • Click on the company menu.
  • Select the chart of accounts from it.
  • Right click in chart of account window and click new.
  • Now open the choose account type window.
  • Click on the expenses and then continue.
  • Enter all the details in the fields like account name etc.
  • Now in last save the changes and click ox for next step.
• While creating a transaction in which you want to track sale tax in this case enter the bill as usual. But you have to go to expense window by clicking on expense tab and select the expense account that you created previous.
• Now you have to enter the amount of sale tax in account column it will helpful in calculating manually.
• Now check if all detail in the transaction adds up to correct total after you click on recalculating.

Tracking of Sale Tax on Purchase as Liability

• Now you have to create current liability account.
  • Open the chart of accounts from the company menu.
  • Right click in chart of account window and select for new from the options.
  • Now choose the type of your account from the account type window.
  • Click on other account types and select other current liabilities from the drop down menu of the account type.
  • Now click OK.
  • Enter all the details and the account name of your account.
  • Select save changes option and then Ok
• While creating a transaction like a bill enter it as usual as in this you will track sale tax but you have to go to expenses tab and select the liability account which you have created earlier.
• Now enter the amount of sale tax in amount column and this will help you calculate manually.
• Make sure that every detail in transaction adds up to correct total after recalculating.
• On the time of paying this sale tax you can see liability that has been accrued by looking at the charts of accounts.
• You can pay this amount with the regular check.

Adding of Sale Tax to Transaction in QuickBooks

Adding of Sale Tax in Invoice

Whenever you need to collect sale tax then you need to add it manually. So for that you have to create specific tax line item that you can add to invoices. Steps are as following:

• First go and select the invoice menu.
• Now create the invoice.
• Select the add product and services option from the menu.
• Now click on the product and services and from the drop down menu click on add new option.
• Now enter the manual name of the sale tax and enter the sale tax rate as per your locality.
• Now select save and save all the changes you have done.

Important Point to be Remember:

• Always review the amount field. Be sure that you calculate the sale tax amount from the total of purchase of goods and items.
• Note down that how much sale tax you added to invoice in the given description field.
• It will help you to be organized in tax season.

Collecting and Track Sales Tax

For collecting and tracking sale tax we have to perform the following steps:

• Click on the edit menu tab.
• Then select company preferences tab on sale tax dropdown menu.
• You will see the preference on the screen is “Do you charge sale tax?” from the list of preferences.
• Click Yes.
• Once the preference is set, you can use the following:
  • Sales Tax Codes: It specify that whether the customer or item is taxable or not.
  • Sales Tax items: It specify that whether the customer or item invoice is taxable or not.
  • Sales Tax Groups: It is the combination of the multiple sales tax item of a company into a combine rate for a customer or invoice.

For collecting and tracking sale tax you need to create at least 1 sale tax item which you can directly do from preferences window.

• At the time you change preferences after creating customers, inventories or non-inventories part, you will get the opportunity of changing tax status for those existing customers, inventory or non inventories part.
• Select the option from what you like to update from the update window.
• After the updating process over, you’re all customers and all items whether inventory part and non inventory part will update automatically.

Importing Sale Tax from QuickBooks Desktop to QuickBooks Online

You can’t convert sale tax perfectly from QuickBooks Desktop to QuickBooks Online. Sometimes some of the taxes convert as journal entries or import only the list and balances when you convert them from QuickBooks Desktop to online.

There is a sale tax payable account at the Chart of accounts page. There will be one sale tax payable account in QuickBooks Desktop and one sale tax agency payable account in QuickBooks Online.

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