QuickBooks Tips

Setting up Sales Taxes in QuickBooks, Part 1

10/15/2020

Next to payroll, state sales taxes represent probably the most complex element of your accounting tasks. QuickBooks can help with the mechanics, but there is a lot you need to learn before you can start charging and paying them. Here is an example:

  • Is your company located in a destination-based or origin-based state where taxes are concerned (do you charge sales tax based on where your customers are or where you are)?
  • Certain types of items and services are exempt from sales tax. Are yours?
  • What local taxes (city, county, etc.) must you collect, if any?
  • How often must you submit what you owe, and to what agency?

If you don’t know your state’s rules, search for your Department of Revenue (sometimes called the Department of Taxation) on Google. It is a complicated process and if you need more detailed information you can always call and speak to someone in the office. After all, you can’t begin to work with sales taxes in QuickBooks until you first know the answers to many questions.

First Steps

Once you know what your state’s rules are, you can start setting up the sales taxes you’re required to collect and pay. Open the Edit menu and select Preferences. Click on Sales Tax, then Company Preferences. Make sure the Yes button is highlighted next to Do you charge sales tax? , then click on Add sales tax item. You’ll see this window:

Setting Up Sales Taxes In Quickbooks Part 1

Figure 1: In states where it’s required, you may have to at least set up a state sales tax item in QuickBooks. You may also be responsible for local (city, county, etc.) taxes.

TYPE should already be set to Sales Tax Item. Enter a name for your tax in the Sales Tax Name field; the Description should automatically appear as Sales Tax. Type in the Tax Rate (%) and the name of the Tax Agency that will collect it (select if it’s not there already). Click OK to return to Company Preferences and continue to define additional tax rates. If there is a sales tax item you use frequently, you can select it from the Your most common sales tax item field.

Tip: Each sales tax rate is considered an Item in QuickBooks. When you have to edit or delete one, open the Lists menu and select Item List. Type sales tax in the Look for box, then Search. Right-click on your target and select your desired action from the local menu that appears.

Sales Tax Groups

When you want to combine multiple sales taxes as one item (state, county, etc.), click Add sales tax item again in Company Preferences and choose Sales Tax Group. Enter a Group Name/Number and Description. In the table below, click the down arrow in the field in the TAX ITEM column. Keep selecting individual tax rates until you’re finished, then click OK. When you use one of these groups in a transaction, the customer will only see the total tax, but reports will break them down into their individual parts.

Completing Your Preferences

The bottom half of the Company Preferences screen needs more information.

Setting Up Sales Taxes In Quickbooks Part 1

Figure 2: It’s important that all the entries at the bottom of the Company Preferences screen are correct before you start working with sales taxes in QuickBooks.

The first two items here are simply field labels that will appear in transactions to indicate whether or not a line item should be taxed. You should leave them as is; they’re automatically created by QuickBooks. If you want to Identify taxable amounts as “T” for Taxable when printing, click in that box to make a checkmark.

Is your QuickBooks company file set up on a cash or accrual basis? Click on the button in front of the correct choice. WHEN DO YOU PAY SALES TAX is a question that will be answered as you’re learning about your state’s sales tax requirements. When you’ve completed this section, click OK.

Assigning Tax Codes

As you create item and service records in QuickBooks, you’ll be asked to indicate whether or not they’re taxable. The Tax Code field appears at the bottom of the window, like in the image below.

Setting Up Sales Taxes In Quickbooks Part 1

Figure 3: You’ll need to designate every item or service you sell as taxable or non-taxable.

Because there is so much more you need to know about collecting and submitting sales taxes such as how to work with transactions and reports, you will be glad to hear that those topics will be covered next month. In the meantime, if you need help setting up your QuickBooks company file for this complex task, don’t hesitate to call.

Ask a Question

Find comfort in knowing an Expert in accounting is only an email or phone-call away.

We Are Here to Help

We will happily offer you a free consultation to determine how we can best serve you.

Blog

Attestation Services: Compilations, Reviews, and Audits CPAs offer attestation services as unbiased options

frequently asked questions

  • What Is A Virtual CFO & How Can It Transform My Business?
    • a. A Virtual CFO can be a much-needed sounding board, coach, and guide. Outsourced Virtual CFO is generally not just one person, but an experienced team of professionals providing a full-stack Accounting and Finance Department at a fraction of the cost that it would otherwise cost a business to hire even just one full-time CFO internally. The right virtual CFO service team, such as the one at Perpetual CPA, can deliver timely, detailed, comprehensive financial reporting, interpret the financial data, prioritize recommendations, give expert guidance on how to execute those recommendations, and ultimately give a better path to business success.
  • How can a Virtual Accounting Department help small businesses scale and grow?
    • a. A growing number of small businesses are opting to outsource services such as IT, human resources, or accounting. The benefit of a Virtual Accounting Department is that the company can reduce or increase services to accommodate current business needs. Because the service provider has multiple clients they can absorb fluctuations in workflow more easily than the average small/medium business can on its own.

      b. A Virtual Accounting Department can integrate with a company’s own accounting department to create a blended solution or provide a full-stack accounting department, including Accounting Staff, Manager, Controller, and Virtual CFO. By using a Virtual Accounting Department Small business owners don’t have to worry about hiring, training, figuring out compensation, and payroll compliance for the internal accounting team. Also as the business grows and new and more complex accounting and tax issues come up, the outsourced Virtual Accounting Department can provide all the needed expertise to facilitate continued business success.
  • What are the benefits of hiring a CPA firm?
    • a. Certified Public Accountants (CPAs) do a lot more than just crunch numbers and prepare taxes. They provide valuable expertise and strategies to help businesses and individuals achieve their business and financial goals. A CPA firm can help small businesses with management financial reporting, tax compliance, strategic business advice, and much more. Firms like Perpetual CPA, that specialize in helping small and medium-sized businesses achieve growth, can also provide Virtual CFO services, that help the business owners have the foresight into the short-term future cashflows and be able to more successfully navigate their business performance.
  • What are the best strategies for small business growth?
    • a. A business growth strategy is, simply, a plan of how a business gets from where it is today to where it wants to be in the future.

      b. Some of the questions to consider when coming up with a growth strategy are:
      i. Where will the business get new customers from?
      ii. How will the business expand into new markets?
      iii. What new products could the business offer?

      c. In reality, what happens with many small businesses, is that they generally achieve a specific level of business activity or sales and then the business growth trend flattens. In those cases, working with a firm like Perpetual CPA, which provides Virtual CFO services, can help small businesses avoid stagnation. Virtual CFO services, aside from providing timely accounting and tax reporting, can also provide valuable insight into the current performance of the business, as well as, foresight into the future cash flows for the business. Perpetual CPA Virtual CFO team helps small businesses interpret their financial information and come up with business strategies to help improve business performance and achieve growth.
  • What are the best strategies for small business risk management?
    • a. A risk management plan helps a business develop a detailed strategy to deal with certain risks that are particularly important for the businesses’ success.

      b. For many small and medium-sized businesses, the easiest way to develop and implement a business risk management plan is to work with a reputable CPA firm, such as Perpetual CPA. Large corporations invest a lot of resources and time into managing risk, which is a material factor that allows those large corporations to continue to generate billions of dollars in revenue every year. Small businesses, however, almost never manage any business risks, which is the major reason that over half of all the small businesses do not survive for more than 5 years. Generally, small business owners are not experienced corporate business professionals and lack the needed business knowledge, yet they often have to wear many hats while trying to get their businesses off the ground. In those situations, a CPA firm such as Perpetual CPA, can help small businesses better manage tax compliance risks, cash flow, internal controls, business administration, financial reporting, and much more.
  • What is Strategic Advisory and Virtual CFO? / How do Strategic Advisory and Virtual CFO services work?
    • a. When small businesses start spinning wheels, it is a good time to consider hiring a reputable CPA firm, such as Perpetual CPA, which can provide both Strategic Advice and Virtual CFO services.

      b. As a strategic advisor, the CPA firm will work with business management to improve the effectiveness and profitability of the business. They will look holistically at the business and find ways to operate the business more efficiently, increase customers through additional or improved marketing or improve customer touchpoints and service.

      c. As a Virtual CFO, the CPA firm is like a part-time version of a traditional CFO or Chief Financial Officer plus a full Accounting support team. They perform the tasks that in a larger organization would be performed by the CFO, Controller, and Accounting Staff such as preparing and overseeing the budget process, identifying and analyzing current and future trends, and developing strategies for the business growth.
  • How can timely financial visibility and management reporting help with better business decisions and growth?
    • a. A simple way to a successful business is to prioritize the timely financial visibility and management reporting as it means:
      i. Timely financial information and analysis are essential for making informed decisions, evaluating your company’s results, improving financial performance, and ensuring you are on the path to meet your strategic goals.
      ii. Management reporting is a source of business intelligence that helps business leaders make more accurate, data-driven decisions. But, these reports are most useful if they are available timely and the management receives proper interpretation of the business financial information.

free initial 30-minute consultation

    © Perpetual CPA 2020   •   Site Map   •   Privacy Policy   •   Disclaimer   •   Powered By   Designed by Dot Com Media Moguls