Managing Sales Tax Payments
Every time you record a sale both the taxable and nontaxable amounts are documented. QuickBooks also tracks the amount due to each tax agency based on the preferences you set up when you created your company file. Therefore, before you pay your sales tax online, you should run a sales tax liability report. You can use the detailed information in this report to help you fill out your state sales tax forms. To access this report, click on Vendors from the Menu Bar and select Sales TaxàSales Tax Liability.
The sales tax liability report summarizes your sales tax liability (the sales tax you collected and currently owe to your tax agencies). The sales tax liability report shows your total taxable sales, total non-taxable sales, and the amount of sales tax you owe each tax agency. If you collect sales tax for more than one tax district (city, county, state, etc.), each district has its own line in the report. The last column shows how much your business currently owes each tax district and the total tax you owe.
What does “multiple taxes” mean? If you see this line item on a sales tax report, it means that you are using a sales tax group item (i.e., you need to charge more than one sales tax rate per sale and you’ve grouped them so that the customer sees only one sales tax amount). If you use a sales tax group item, some reports show the sale amount once for each sales tax rate so you can clearly see each amount. The line “Multiple taxes” is used to give an accurate total by canceling out duplicated sales figures.
In this example, Rock Castle Construction has a sales tax group item that is composed of three separate sales tax items with flat rates of: Metropolitan Transportation Tax at .375%, City Tax at 4.5%, and State Tax at 4%. All of the sales tax collected is payable to the tax agency named NYS Department of Finance. The sales tax liability report shows the amounts owed for each sales tax rate and the total tax owed so that you can complete your sales tax returns using the correct amounts. The “Multiple taxes” zeros out the duplicate totals so your “Total Sales” figures will be correct.
Recording Sales Tax Payments in QuickBooks:
Depending on your sales volume, you will have to pay sales tax monthly, quarterly or once a year. After you file and pay your taxes online you must also record the payments you made in QuickBooks. In order for QuickBooks to properly reduce the amount due in your sales tax liability account, you have to record your payment through the Pay Sales Tax window.
Important: Do not pay your sales tax using the Write Checks or Pay Bills windows, as this will cause errors in your bookkeeping and in your sales tax reports.
1. Go to the Vendors menu, choose Sales Tax, and then click Pay Sales Tax.
2. If you have more than one checking account, choose the one you want to use for these tax payments.
Note: You can set a preference to have a specific checking account appears as the default account in the Pay Sales Tax window. This is useful if you always make your sales tax payments from the same checking account. If you do not set this preference, QuickBooks uses the most recently used account. To set this preference, go to the Edit menu and click Preferences. In the Preferences window, click Checking in the list on the left. Click the My Preferences tab. In the Select Default Accounts to Use section, make sure the Open the Pay Sales Tax checkbox is checked. Click the account drop-down arrow for that preference and choose the checking account you want to use. Click the OK button.
3. Check the date that QuickBooks shows in the Show sales tax due through field. QuickBooks automatically inserts the ending date of your last sales tax period, based on the payment schedule you set up in the sales tax preferences. You can change it, if necessary, but remember that your payment schedule is determined by your tax agency. You can’t just change the dates to suit your own needs.
4. In the Starting Check No. field, verify that the check number matches the next check that you want to use. If not, change the number here.
5. The list of payments shows all sales taxes that your company owes and any adjustments you’ve made. For each sales tax item, the list shows the tax agency (vendor) to which the sales tax is payable and the amount due as of the date shown above. Select the sales tax agencies you want to pay.
- To select one or more individual tax agencies, click in the Pay column for each agency. The Pay All Tax button changes to Clear Selections.
- To select all tax agencies, click Pay All Tax. If you pay several tax agencies, it’s unlikely that they will all be on the same payment schedule, but if they are, this is a fast way to select them.
- If you need to clear a section, click it again. To start over, click Clear Selections.
What if the list is empty? If the list is empty, you may have set up sales tax incorrectly. It is also possible that none of your sales tax payments are due for the date you selected.
6. (Optional) If you want to make a partial payment to a tax agency, click in the Amt. Paid column and edit the amount.
7. (Optional) If you still need to make an adjustment for a credit, fine, rounding error, etc., click Adjust.
- In the Sales Tax Adjustment window that appears, you are going to select the adjustment date (usually the last day of the sales tax period you are paying), the Sales Tax Vendor you are paying and an adjustment account to reflect the adjustment amount (usually an other income account). Then you will select whether you are reducing or increasing the sales tax liability, put in the amount of the adjustment and put an explanation of the adjustment in the memo.
QuickBooks will let you know that since you made an adjustment, the amount paid to each vendor has been reset in the Pay Sales Tax window. You can now see your adjustment in the window. (see below)
8. (Optional) If you want to print the check(s) later or by hand, clear the To be printed checkbox.
9. Click OK when the total in the “Amt. Paid” column matches what you paid online to your tax agency. QuickBooks will then record the payment and reduce your sales tax liability.
The Manage Sales Tax Window:
QuickBooks has an Icon on the Home Page called Manage Sales Tax. If you click on this icon, the manage sales tax window will open. In this window you can do all the things we talked about above, such as Set Sales Tax Preferences, View Sales Tax Reports, Adjust Sales Tax and Record Sales Tax Payments. You can also View Sales Tax Items and Sales Tax Codes.
For more information on how to properly set up and manage sales tax, contact your QuickBooks ProAdvisor.