Paying Sales Tax in QuickBooks

Of all its features, paying sales tax in QuickBooks can be one of the most challenging to use. This can be because sales tax items have been set up incorrectly. It can also happen if you don’t understand how sales tax tracking works. If you have made mistakes in setting up or working with sales tax, your balance sheet will not reflect the correct amount owed.

For help with setting it up, go to this page on setting up sales tax in QuickBooks. The instructions there will give you an understanding of how it works. The important thing to know is that you must have your items set up correctly to help you have an easier time when reporting the taxes.

The main mistake people make is not using sales tax items to create sales tax groups. Items help you to separate the state tax rate from each of the local rates you collect and remit for. When you set up items separately, you can see the tax owing for each city in the Sale Tax Liability report.

Location Code Numbers

If each city has a tax code number you can include that as part of the sales tax item name. This is helpful when a county or city has more than one rate. Examples of this are where one city is in two counties or there is more than one rate for unincorporated parts of a county based on the location. When this is the case, code numbers will help you easily match them from your report in QuickBooks to the state sales tax report your are completing.

Note: As of this writing, QuickBooks Online does not have number codes when you use the automatic rate calculation feature. It works okay, but you have to be extra careful when filling out your reports.

Sales Tax Liability Report

Always review the sales tax liability report before beginning to file your return. It will save you from having to file an amended return if you can catch mistakes or issues before you file. I also recommend going over each of your invoices for the tax period to look for errors.

Tax Code Issues on Invoices

If your business collects sales tax and also does wholesale work, you should look closely at your Sales Tax Liability report before attempting to file your tax return. One thing that can happen often is that a wholesale invoice may have one or more line items marked as taxable by mistake.

If this happens you will see an amount in the ‘Taxable Sales’ column in the ‘Resale’ row. Since resale items are not taxable, the amount in this row for taxable sales should be zero. If you see an amount there, double click on it and you will be given a list of invoices with this issue. You can then open the invoices directly from this report and change any line items to the correct tax code.

Tax Rates Not Current in Your Software

If the totals for each location don’t match those on the return, you should go back to the books and see where the problem is. You may have an incorrect rate in your software. This will happen when a sales tax item is not updated to reflect an increase in a certain city or county and not enough tax was charged on those invoices.

The good thing about using sales tax items and combining them into sales tax groups is that it will be easier to find where a problem like this came from. When you do this, you will only need to look over invoices for the particular city or county that has the discrepancy.

Paying Sales Tax – Multiple Locations

It is very important that after you have filed your state tax return and are ready to record the payment in QuickBooks that you record the correct amount for each city and the state in the Pay Sales Tax window.

In this window, I enter the amount paid for each location and then for the state. In states like Washington that have B&O tax, I enter that tax as a sales tax adjustment before going to the pay sales tax window. Adjustments to sales tax like this are on a line by themselves in this window and the name is blank. So if you have made an adjustment like this, be sure to look for the amount on a blank line.

The total amount paid at the bottom of the window will match the total amount paid with your sales tax return when you’ve done it correctly. On the other hand, the figures in the ‘Amt. Paid’ column will not match the figures in the ‘Amt. Due’ column. This is because you will be paying for a previous period while still collecting tax in the current period. The sales tax due in QuickBooks will constantly be changing as you enter new invoices or sales receipts. The exception to this rule is if you are entering invoices into QuickBooks after the fact and only one period at a time. In that case they will match exactly.

Remember to take your time when tracking and paying sales tax in QuickBooks. You will save yourself time and keep things accurate when you are deliberate and detailed in your bookkeeping.

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