 QuickBooks desktop 2023 sales tax set up. Let's do it within two. It's QuickBooks desktop 2023 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 win applicable So once again click the link below for a free month membership to our website and all the content on it Here we are in QuickBooks desktop get great guitars practice file that we started up in a prior Presentation now going through the setup process. We do every time we open it maximize on the home page to the gray area Going to the view drop-down no team We have the hide icon bar and open windows lists checked off open windows open on the left hand side So now that we have the inventory turned on the items in place We want to recap the things that we need to consider when we turn on the sales tax Noting that taxes always kind of complicate things We've got our normal business process and then we've got the wrench thrown into it Which in this case is going to be a sales tax which in the United States is not a federal tax But is going to be a state and local tax Which also can add to more confusion because we got to determine where we're subject to tell sales tax in and if We have different kinds of businesses that we do in different locations What which locations are we subject to sales tax in now in general when we turn on the sales tax There's at least three things that we want to be considering one we've got to turn on the sales tax and Then two once the sales tax is turned on and we've got the rates turned on the principal driving factor to Determine whether or not someone is subject to sales tax will be the items So then we've got to determine which items are going to be subject to sales tax Indicate those in the items those in the United States will typically be the inventory items And then we've got to think about if there are any customers that would not be subject to the sales tax So in other words when we make a sale using an invoice or a sales receipt This is usually the form that will be triggering the sales tax If I make a sale say to a particular customer and I choose an item that is subject to sales tax This item is the thing that usually determines whether or not the sales tax will be calculated or not However, we might have some customers that we could say are not subject to sales tax So even though the item is set up to be subject to sales tax We might have a customer that's saying it kind of overrides that because it's not say the end user or something like that Otherwise, it's typically the item. So if I choose a service item No sales tax is calculated because it's the item that's going to be driving Whether or not it be subject to sales tax. Okay, so when we go through the setting up the sales tax Let's go into that in a little bit more detail Usually in the United States, it's going to be Inventory items that are subject to sales tax. So if you just have service items, you might not have to worry about it Generally, so you generally have to turn on the inventory if you're if you're tracking inventory on a perpetual inventory system Which you could see up top. This is actually the tracking of the inventory or possibly you're not tracking it that way You're doing a periodic system But you still have some of the items when you sell them which will be subject to sales tax because they're inventory You could tell if the tracking of inventory is turned on by going to the edit drop-down Preferences and going into the inventory and we turned on inventory again It's not required for the sales tax But if you have a perpetual inventory system that will that will tell you that this company file is, you know Having inventory or dealing with the inventory then we've got to turn on the actual sales tax So if I go into the edit drop-down Preferences we saw this in a prior presentation. We turned on the sales tax down here We went to the company preferences and we said yes, we're subject to the sales tax Then when once we were subject to the sales tax, we had to add the sales tax items Which are going to drive the calculation. These are the things kind of like the items For invo inventory and services that help drive the data input of the invoice and sales receipt These will drive the the calculation of the sales tax. We'll get back to that in a second We have the codes down here that show us whether it be taxable or non-taxable These are abbreviations that kind of are indicating the sales tax item and then it's identified with a T And then we have the as of invoice date or upon the receipt of payment. So in other words The remember the sales tax will differ possibly from state to state So you got to determine what you are subject to in your particular location And you could be subject to multiple sales taxes if you're if you're doing business in different locations So wherever the whatever the rules are in terms of where you're subject to sales tax You have to determine those we're only going to set them up as if we're in one location Subject to one sales tax, which is we're just going to make up a sales tax to make it kind of artificial here so Then when you make a sale if you were to sell something using a sales receipt Then that means that you got paid at the same point in time you did the work So there wouldn't be really an issue whether you're on an accrual basis or cash basis You would be charging the sales tax at that point in time receiving it from the customer Remembering that the sales tax concept is that the tax is being paid by the customer You are being forced as the as the business to be the tax collector. That's the idea of it So in this case you're collecting from the customer the sales tax And over and above the sale that you are making that you will have to later than give to the government Now there's kind of an issue when you make an invoice because when you invoice something you didn't yet get paid You're expecting to get paid in 30 days or something like that So the question then is should I be accruing the sales tax at this point in time when I made the invoice even though I didn't get the money yet, or should I accrue the sales tax on the received payment Once I actually get paid if I go over here, that would be a cash based system Versus an accrual based system. You got to determine that in terms of Where you are located how you want to calculate it We're gonna calculate it based on the invoice or the sales receipt when those items are our Input and then the question is of course once you collect this money from the customers You're now the tax collector and you've collected the sales tax from the customers as you make sales When do you have to pay that to the government? Do I have to pay them that to them after every sale or something like that? That would be quite tedious. No, you're gonna have to like for example Collect all the sales for January and then pay January sales tax that you collected to the government in February possibly that would be a monthly kind of system or you might have a quarterly system where you collect sales tax For the first three months and then in the next month by the end of the following month You got to pay it to the government now normally this will change from state to state So you got to determine what they want you to do because you're subject to whatever they whatever they want in that area Whatever the law says, but oftentimes as Your sales go up the government's gonna want their money sooner typically right so if you if you have a lot of sales Tax that you're collecting they're gonna want their money possibly monthly if you don't make that many sales Are like yeah, whatever you can give it to us, you know at the end of the year you could do it on an annual basis So we're gonna do it on a monthly basis because that fits into our practice problem Well, it will be able to see the sales tax accrue upwards now Then we turned on the sales tax items by said by adding an item where we have the sales tax item here and the groups of items As well, and then we chose which item The group of item that's gonna be subject to the sales tax You can also see that if I close this out by going to the list drop-down and we go to the item lists And you've got our sales tax items here. So if I had other Places subject to the sales tax then I might be in the same place and be subject to multiple sales tax Like the state might charge me a sales tax plus the locale might charge me a sales tax So then I might set up items a new item and then I can say okay It's gonna be a sales tax item and then I put in Whoever I'm subject to the sales tax from Here and then I might have a group that I would set up which would be combining together the sales tax items So the ones that we set up here Which are generic if I right-click and edit this item We set up this sales tax item for California sales tax California sales tax description We said that was 4% just made it up And so we can get a nice easy percent which will be 5% total and then the vendor This is who we're gonna pay it to which again We just made up a vendor because we want to make it generic For our practice problem since it will change from location to location and then here we did another one We edit if I edit this one Then this was for the city that we said was 1% to the total sales tax adds up to 5% So how am I gonna allow that to to calculate on the invoice? We then created a group So if I edit this one Edit hold on a second Close in that if I right-click and edit item So then we would we chose both of those to add them into a group And then we said I want this group to be the main thing that shows up on the invoice Which if I go to the edit drop-down preferences sales tax here That's this item here. So that's the group that's now going to show up So that means that if something is subject to the sales tax closing or let's go to the home page and Say customer one if it's subject to sales tax Then it's gonna choose that group and charge the group tax of the 5% and hopefully apply them out to the proper Locations so that when I actually have to pay the money out I can pay them to the proper vendor because I have those two items that are driving that So that's the general that's the general idea there. So once the sales tax is set up I'm not gonna record this. I'm just gonna close it Then the next step is to set up your items and determine which items are subject to the sales tax So if I go to the list drop-down and items again item list, which is open over here Then we set up our items and remember That the inventory items or the service items typically are not in the United States subject to sales tax So I might say if I edit this one Then I'm gonna say this one's non taxable, right? It's got no tax non tax That means sales tax in this context But this but then I said the inventory items are subject to sales tax So when I set up these items, I said edit edit the item I'm gonna have to set up the sales tax or collect sales tax when I sell these Which is indicated by the taxable component here. This is the driving component Which whenever we make a sale will determine whether or not the system is going to automatically charge sales tax or not Then it will charge sales tax based on, you know, the grouping that we basically set up So if I close this out, then we can see that once again if I go over here create an invoice You have to have a customer and then if I add and if I add a service item, no sales tax but if I add an Inventory item we do have the sales tax calculated. So what's this invoice gonna do? It's gonna increase the accounts receivable by the full amount plus the sales tax 577 50 It's gonna increase the other side, which is which is income But only by the amount we charge 550 and then this the payable would go up I'm not gonna actually record it but a payable would go up by 2750 Noting that even though we're collecting 577 50 I'm not recording that as income and I'm not gonna have a sales tax expense Because the idea is that I didn't really charge 577 50 I charged 550 and then the and then I was the tax collector I was made into the tax collector to collect 2750 that I then have to get to the government Which is really a tax on them. So I'm not gonna record Income of 2750 and then an expense when I pay the 2750 But instead it goes on the balance sheet. It never hits the income statement Increase in a payable and then the other side's gonna go and then there's inventory That's that that's gonna go down and cost a good sold. So I'm not gonna actually record this I'm gonna say no But then I could say well, what if there's a customer that isn't the end user for whatever reason isn't subject to sales tax So I could then say, okay, what if I go to my company drop-down or customer Customer center and I could say this customer. Let's say isn't subject to sales tax I'm gonna say let's go to the edit here and then let's go to the sales tax item And let's say for whatever reason they're non sales tax So the sales tax would generally be calculated for them Given the item we're selling to them, but because they're not an end user or something like that They're not subject to sales tax. I'm gonna say, okay, let's test that out home page Create an invoice Customer and then I'm gonna say the item an inventory item, which is usually subject to sales tax But QuickBooks automatically assigns the sales tax code for the customer to this line Unless you change it to assign a different sales tax code Click the drop-down in the tax column and select a new code. So I'm gonna say, okay Notice it didn't charge the sales tax here. So so and normally would if I change that option back on the customers So and and and change it back I'm gonna say let's edit that again and say go to the sales tax and say I'm just gonna delete that and say okay Save it then it's gonna be driven by this by the the Item again once again. So we're gonna say the item is gonna be subject to the sales tax So that's the that's the general thought process that we that we want to be thinking with the sales tax You got to say, okay, where am I located? What's gonna be the sales tax? Do I have inventory if I have inventory? Do I need to turn on the inventory then I need to actually turn on the sales tax? Enter the items related to the sales tax in such a way that it will group them and calculate them Then enter the items inventory items, which will be subject to sales tax Telling the system whether it be subject to sales tax or not and then think about if I have any customers Which would not be subject to sales tax even though the item normally would be if it wasn't go into that particular customer Now also note yet if to do sales tax you have to use Properly or to do sales tax the way the system is designed You have to make sales with an invoice or a sales receipt. You might be saying I don't want to use those forms I would really like to make a simplified system where I just record all my deposits for example all my increases as Revenue and so I might just want to record a record deposit form if you do that the record deposit form Doesn't have any line item to calculate the sales within the system So you wouldn't be caught so you would have to kind of do your sales tax manually In that instance right because you're not really using the full service accounting system You're not using the forms that are designed for the sales tax So in that case when you make sales you might set up a system and say, okay I'm gonna calculate the sales into the price of the of the sale. So when I sell something I mean for example, you're gonna say, okay, if I sold If I sold this guitar, I'm just gonna tell people it's gonna cost you $420 not $400 but the 420 includes sales tax. So here's the price Including sales tax so that you're collecting the sales tax and then when you record the deposit Then you might just record it basically to Revenue it's gonna be a revenue account but then your revenue accounts gonna be kind of overstated by the sales tax and Then you'll have to determine periodically how much sales tax you owe and you might basically decrease the the The revenue account at that point in time by the amount you sell that would be like a Manual way that you can kind of look at the sales tax We might talk about that a little bit more in the future for some people that maybe they don't want to do the whole Sales tax system and they might try to be simplifying the system and possibly entering data into their system manually by the deposits for example and So and that kind of messes up your whole sales tax thing But you can't do it kind of manually, but that's not how the system is designed But maybe more on that later. This would be the general idea for the sales tax