Managing Sales Tax

In this chapter, we will cover how to manage sales tax in QuickBooks Online. In the United States, sales tax is typically applied to the sale of products. However, some states and local tax jurisdictions also apply sales tax to certain types of services. You need to consult with your CPA or accountant to determine which laws apply in your geographical location. While you cannot pay sales tax directly from QBO, we will cover how to record the payment in QBO after you have paid your tax authority.

We will cover the following topics in this chapter:

• Setting up sales tax in QuickBooks Online
• Creating an invoice that includes sales tax
• Sales tax reports
• Paying sales tax when it comes due

The US edition of QuickBooks Online was used to create this book. If you are using a version that is outside of the United States, results may differ.

Please note the screenshots taken in this chapter have been taken using the...

Setting up sales tax in QuickBooks Online

If you are required to collect sales tax from customers, it is important to complete the sales tax setup in QuickBooks prior to invoicing customers. If you create an invoice without sales tax, you will ultimately underpay the sales tax you are required to submit to your local tax authority. This could lead to additional taxes and penalties, which can add up quickly. Setting up sales tax in QuickBooks from the start allows QuickBooks to automatically calculate and keep track of the amount of sales tax that you owe.

Perform the following steps to set up sales tax:

1. Click Taxes on the left menu bar, as indicated in the following screenshot, to navigate to the Sales Tax Center:

Figure 6.2: Navigating to the Sales Tax Center

2. The following message will appear. Click the Use Automatic Sales Tax button, as indicated in Figure 6.3:

Figure 6.3: Sales Tax Center welcome page

3. The following...

Creating an invoice that includes sales tax

After completing the setup for sales tax, you are ready to create invoices and sales receipts with sales tax. In this section, we will create an invoice and show you how to include sales tax.

Perform the following steps to create an invoice with sales tax:

1. From the left menu bar, click on Sales and then select Invoices, as indicated in Figure 6.9:

Figure 6.9: Navigating to Invoices

2. Click the Create invoice button, located on the right side of the screen:

Figure 6.10: Creating an invoice

3. A blank invoice template will appear. Complete the fields as follows:

   

   Figure 6.11: Invoice template

   • Customer: From the dropdown, select the customer/client you are invoicing (in our example, George Jetson). Then, press Tab; the email, billing address, payment terms, and due date fields will be populated automatically.
   • Location of sale: This field automatically populates...

Sales tax reports

QuickBooks makes it easy to stay on top of the sales tax collected, which will ensure that you pay the correct amount when it comes due. There are two reports available to help you stay on top of the sales tax you owe: a tax liability report and a taxable customer report.

Within the Sales Tax Center, click on the Reports link to access the sales tax reports, as indicated in Figure 6.13:

Figure 6.13: Sales tax reports

1. Tax liability report: This report will show you the sales tax collected as of a specific period of time. The report will show gross sales, taxable sales, non-taxable sales, and the tax amount.

   In the report shown below, there are four columns: GROSS TOTAL, NON-TAXABLE, TAXABLE AMOUNT, and TAX AMOUNT. The gross total amount is $150.00, the non-taxable amount is $0, the taxable amount is $150.00, and the total tax amount is $12.38:

   

   Figure 6.14: Sales tax liability report

2. Taxable customer report: This...

Paying sales tax when it comes due

Unfortunately, you cannot pay sales tax within QuickBooks Online. You must visit the website of your state tax authority and submit payment online, or mail a check before the due date. The following Intuit video tutorial provides a recap of what we have covered in this chapter, plus the steps you need to take to make a payment and record it in QuickBooks Online: https://youtu.be/Rns_R4fRros.

Summary

In this chapter, we have discussed the importance of setting up sales tax in QuickBooks so it can automatically calculate sales tax for you. We have shown you how to create an invoice and include sales tax, and we have covered the key reports available to help you stay on top of your sales tax liability. Since you cannot make sales tax payments in QuickBooks, we have also included a video that explains how to make your sales tax payments outside of QuickBooks. It’s important to make sure you set up sales tax and use the correct sales tax rate. This will help you to avoid penalties or fees for under-reporting and underpaying sales tax to your state tax office. In the next chapter, we will cover how to record invoices and sales receipts in QuickBooks Online.

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