Should I enter my sales tax as an expense every time i pay it or is that automatically figured into my profit and loss statement from the sales tax program?

Forum|Forum|7 years ago
October 19, 2018
3 replies
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QuickBooks Online

Best answer by

When you charge your customers sales tax, it posts to the Sales Tax Liability account (as a credit) in your chart of accounts. When you pay the collected tax to your state revenue department, you would post that payment to the same Sales Tax Liability account (as a debit) to reduce your liability. Generally, the sales taxes would not go through your P&L. Now if you are talking about sales taxes you pay on purchases, then in that case, I would post the taxes to the same expense account as the purchase. In other words, if you purchased office supplies on which sales taxes were charged, the entire amount including sales taxes paid would post to office supplies. Make sense?

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Anonymous

Answer

When you charge your customers sales tax, it posts to the Sales Tax Liability account (as a credit) in your chart of accounts. When you pay the collected tax to your state revenue department, you would post that payment to the same Sales Tax Liability account (as a debit) to reduce your liability. Generally, the sales taxes would not go through your P&L. Now if you are talking about sales taxes you pay on purchases, then in that case, I would post the taxes to the same expense account as the purchase. In other words, if you purchased office supplies on which sales taxes were charged, the entire amount including sales taxes paid would post to office supplies. Make sense?

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AZTaxes

There are problems with lprincecpa's answer. In many states and local jurisdictions, what is known as a sales tax is actually a transaction privilege tax levied on the seller . . . the seller is not just collecting an amount from the buyer and then remitting it to the government agency(ies). In these cases, the liability belongs to the seller and the expense is a seller's expense. If the amount is included in the selling price (the amount received), then, for tax purposes, it can also be deducted on the business return.

In these cases, the seller should be recording the tax expense on either the accrual (time of sale) or cash basis (time of payment). QB can be configured for either case based on how the seller keeps its books.

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mauifun

Thank you for this. We are in Hawaii and the tax is a privilege tax that can be written off. However, I don't know how to do this in quickbooks. We are cash basis and our sales receipts add in sales tax which get auto added into liabilities. Right now I can only think of balancing this with a journal entry to debit the bank account and credit the liabilities owed. However, How do I go about adding it as an expense without it throwing off everything? I imagine adding it as an expense is how we deduct it at tax time. Or do I handle this deduction outside of quickbooks?

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ltsburien-bk

The answer to this question depends on whether you are keeping your books on the cash basis or the accrual basis. If you are using GAAP (generally accepted accounting procedure - which is required for public companies), you are using the accrual basis. Many small private businesses however, do use the cash basis for their books, and federal income tax is calculated on the cash basis. On the accrual basis, you record a liability and an expense when you collect the sales tax from your customers. Quickbooks does this for you when you set up sales tax in Quickbooks Online and record it on invoices, or use the invoice sales tax feature in Quickbooks Desktop. (The accrual basis records expenses when incurred, not when paid: so on your invoice Quickbooks adds this for you: debit expense, credit liability.) Then the liability for the sales tax is reduced when the sales tax is paid. (Debit liability, credit checking.) The expense or check would be recorded as paid from account checking, account paid would be your sales tax liability account. (Example: Accounts Payable - Vendor Department of Revenue).

If you are not recording sales tax on your invoices or sales receipts, then you likely are using the cash basis for sales tax . In this case, the expense would be recorded when the sales tax is paid: Debit sales tax paid expense, credit checking. Quickbooks Online does this for you when you enter an expense the usual way: +, Expense, pay from account checking, down below the account would be the sales tax expense.

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ElginRV

Try going into the Taxes tab.

I found I was not processing the sales tax return and payment correctly in QB's since I do the return and payment outside of it.

View your return(s).

Make adjustments if necessary to have the amount match your payment, then click on "File Return".

Once there, choose "File Manually".

At the bottom of that page, you add the payment date, amount, and account. Then process the return.

(I had to back track, pull my files, and do this a couple of times to get current in QB's.)

Now (I hope) QB's will be able to find a match for those funds when they process next time.

As it stands now, the Tax Liability Account shows payments correctly. :)

Of course, I did have to undo and delete the previous payments, that I had put towards the Expense account of "Taxes and Licenses".

Thus, balancing the books.

Hope that makes sense, and it helps!

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