 zero accounting software 2023 sales tax set up get ready because it's time to become an accountant hero with zero 2023 here we are in our custom zero home page going into the new company file we set up in a prior presentation that being get great guitars support accounting instruction by clicking the link below giving you a free month membership to all of the content on our website broken out by category further broken out by course each course then organized in a logical reasonable fashion making it much more easy to find what you need than can be done on a YouTube page we also include added resources such as excel practice problems PDF files and more like quickbooks backup files when applicable so once again click the link below for a free month membership to our website and all the content on it continuing on with the process of entering those beginning balances as well as those foundational items necessary to make a data input and the normal accounting process as easy as possible this time we want to talk about sales tax as though we're in the United States however the sales tax is basically a kind of usage tax so if you have a tax that needs to be collected when you're making a sale this is going to be that type of concept in the United States the major federal tax is the federal income tax and then on the state level that's usually when the sales tax comes into play on state and local levels that means the sales tax could change as we go around in the United States so we're going to practice kind of our generic sales tax problem then turning on the sales tax now there's a couple things we want to keep in mind with the sales tax when we turn on the sales tax we have to think about one setting up the sales tax making sure we set it up properly for the location that we are in and then two applying the sales tax to when we make sales with invoices and and money in forms and we do that with the sales tax items primarily and then three we might have customers that are exempt from the sales tax so then we can change the customer settings in the event that they might be exempt say from a sales tax so the general idea would be that whenever we make a sale we would do so with it with an invoice or receive a money item and we if we have the total down here if I add an item let's just add an item and say we've got this one here if this is subject to sales tax what we would like to see happen is the sales tax being calculated so if this was a $500 guitar that we're selling we would like to be tacking on whatever the sales tax is collecting the sales tax so that we can charge the client for the full amount including the sales tax and then hopefully have the system to properly track the sales tax so that we can then pay the sales tax in accordance to whatever payment schedules we have to do that all right so I'm not going to actually record this invoice so let's cancel this one and let's think about the sales tax process to be setting up so if we go into the accounting up top we're going to go into advanced within the advanced we've got the tax rates on the right hand side and then within this section it says getting started with tax rates so every transaction line item you enter into zero needs a tax rate the tax rates you use will depend on the location of your organization so generally the software is getting better and better at being able to basically get the right tax rate based on the location which is great so tax rates can have multiple tax components for instance you can have an item that is charged a tax rate called the tax on goods 8.75% that has two components a state tax of 7.75 and a local tax of 1% so the sales tax can get somewhat complicated if you're in the United States for example you could have you know the state tax and the local tax that are basically combined together for that same location that would be the sales tax and then you can generate reports on any tax rate and tax components if you need to report an income separately to expenses or capital purchases separately to expenses then you should create a separate tax rate for each so we have the tax options down here now normally you would want to go into the sales tax lookup where it says here look up our rates for when when invoicing customers so you got the sales tax lookup and then you have your physical address and you basically it can help you to calculate the actual tax rate based on your physical address which is great that's usually the way you would want to go note that if you're doing online sales then it gets a little bit more complex because then you have to determine whether or because usually the sales tax is going to be subject to your location so in the United States multiple states and localities are going to have different sales tax and then the question is well what if you're selling stuff on an e-commerce situation then you know where are you subject to sales tax on your home base or on the places where you're actually making the sale and then who's responsible for the sales tax if you're selling on other platforms like an Amazon or something like that you have questions of who's responsible for the sales tax so if you have multiple areas where you're so where you're subject to sales tax it gets a little bit more complex for our practice problem here we're going to use a generic sales tax because we want to keep it kind of generic because again sales tax even in the United States is different from place to place so we want to get the concept of how a usage tax like a sales tax would work so let's go down to the tax rates and put like a generic tax rate down here and we're going to have tax on sales so I want to go into the tax on sales and then I'm going to say a generic five percent so I'm just going to make up a generic five percent tax on sales and just note that if I made another component down here just so we could see that so like you could have tax on sales for for California and then you could have sales tax local or something like that and it would let's make it add up to five percent four and one hour let's say so you might have multiple components that that you're subject to sales tax based on your location so I'm going to say let's save it and then I'm going to check that off that's going to be the tax on sales I'm not going to have any tax on purchases and so so I'm not going to put anything there but you have the option for tax on purchases if you're subject to that as well and so let's go ahead and save that and then let's check it out so let's just test it out if I go well first I then the next step before I enter an invoice is to go to our items and choose the items that are subject to tax so possibly not every item is subject to tax so the items are the things that we're selling so if we go into our business up top products and services and we check out our items now I'm going to imagine that the items subject to sales tax will be the inventory items and not the service items so we're only going to have to deal with sales tax with the inventory items so I'm going to go into each of the inventory items and then edit the inventory item and I want to say that it's subject to sales tax now this would be a great thing to have had available when we set up the items but I wanted to do it separately because of course the sales tax is kind of a kind of a whole burden in and of itself which I want to put a whole another presentation on but you might you know it might have been good to do it the other way around right set up the sales tax and then set up your items so that when you set up the items you would then say whether or not they're subject to the sales tax but in any case I'm gonna say the sales tax is on save it and then let's go back to our products and services that was the ukulele I'm gonna do that for each one of these so we're gonna go into the Gibson USA let's edit that item and turn on the sales tax tax on the sales por favor that's the Gibson USA back to the products and services I'm just gonna do this for everyone epiphone semi hollow body that one subject to sales tax to you're not getting away without the sales tax epiphone hollow body the government wants a piece of your hollow body so it's semi hollow body now it's semi after they took a piece out so then we're gonna go to epiphone less Paul and edit that one as well and say that one subject to sales tax and epiphone less Paul back and now we want epiphone Riviera edit that one subject to sales tax as well and one more one more and then we have to stop this good times because it's the last one we get to do so enjoy it people edit the sales tax and then this one is gonna be tax on tax on and then tax on wax off okay so there we have it then if I was to make a sale up top with an invoice perhaps invoicing someone typically you're gonna need a customer up top because it's possible that the customer could be exempt from the sales tax so it's got the tax rate tax on 5% so if I let's make a generic customer customer number one and I'll just make a generic customer and put our item down here we're just gonna say an epiphone boom sales tax then being calculated down below as you can see with that 5% so the generic 5% being calculated so what's this gonna do I won't actually record it now because we'll record some in future presentations and we'll dive into the transactions in more detail as we do but notice this adds a level of complexity to the transaction because if we're selling an inventory item it's already kind of complex we've got the 57750 that we're expect to be collecting from the customer that's gonna increase the accounts receivable the other side going to sales but not including the 2750 therefore sales is only going up by what we charged the 550 the difference 2750 is increasing a payable a liability for the sales tax payable and then inventory is going down by an amount not shown here but known by the item and the other side is going to cost a good sold so notice that again this 2750 is not hitting the income statement as revenue you can imagine a situation where it would and you have an accounting system that kind of works you'd say hey the tax is just like an expense it's a business expense so you might imagine why don't I record 57750 as revenue and then the 2750 should be an expense basically because that's an expense of doing business for me paying the taxes right but we don't do it that way and one reason we don't do it that way is because the idea is that you are not the one being taxed as the business owner that might not be the way it works in practice but that's the idea right the person being taxed supposedly is the client you are just the tax collector therefore we shouldn't be recording the 2750 as revenue it should just be recorded off income statement as a payable a liability that will accumulate upwards and then we'll pay it down like an accounts payable kind of account periodically when we owe the tax so let's cancel this out now there's one other thing to keep in mind here you might have some customers that are not subject to the sales tax so you might say I'm making some invoices but I don't want to calculate the sales tax for those particular customers because they're exempt for whatever reason so in that case you would go into the customers up top and say let's go into our customers we made customer number one here or where is custom let's just do it doing a new customer so add a contact and then I'm going to say this is customer number two and I'll just add generic customer number two and then on the address I don't need anything on the address will add more customers later by the way on the sales information what I'm trying to get to it says I use the organization settings for sales tax meaning that basically means we're going to use the default settings that you're going to be charged sales tax based on the items right but if they're sub if they're not if this person is exempt from sales tax for whatever reason we could say they're exempt and now if I was to make a another invoice for customer number two customer numero dose so I'm gonna say this is gonna go customer two and then when I put the item throw down the item it doesn't calculate the sales tax right whereas if I had customer one again custom this contact has different settings let's do that let's just let's just cancel out of this because I don't want to confuse I don't want to confuse anybody here including myself I confuse easily so if I say this is customer number one again no customer found so I'd have to add customer one but the idea being that they are not exempt therefore the sales tax is calculated right so customer to it was exempt notice if I chose something that I didn't have sales tax on like a diagnostic or the hourly service no sales tax is calculated because the item didn't have a sales tax on it so I got to turn on the sales tax I got to make sure I've got the proper sales tax calculations in place which could be based on your location you could do that but we made the generic sales tax then we have to make sure the items are set up to populate sales tax per line item because I could have multiple line items right I have that one and then I could have another item this one is subject to sales tax that one wasn't right so now I've got an invoice with two items but only one of them subject to the sales tax and by the way if you if you did need to generically adjust it you can go into these line items and say that one should be subject to sales tax like that so that's a way to kind of kind of override the system that's a kind of an override you don't want to have to override the system generally you want it to all be set up so that you can just create the invoice and the sales tax will calculate the way it should be calculating all right so now that that is set up when we do the data input and future presentations we'll have that generic five percent sales tax calculated