 QuickBooks Online 2024. Sales tax set up. Get ready and relax because it's so easy using QuickBooks Online. You'd think it'd be a crime, but it's not unless possibly you're using it to track the sale of Biden family produced paintings or something. But anyway, that's self-explanated. Let's get into it. First, a word from our sponsor. Actually, we're sponsoring ourselves on this because apparently the merchandisers they don't want to be seen with us. But that's okay whatever because our merchandise is better than their stupid stuff anyways. Like our trust me, I'm an accountant product line. It's paramount that you let people know that you're an accountant because apparently we're among the only ones equipped with the number crunching skills to answer society's current deep complex and nuanced questions. If you would like a commercial free experience, consider subscribing to our website at accountinginstruction.com or accountinginstruction.thinkific.com. Here we are in our Get Great Guitars 2024 QuickBooks Online Sample Company 5. We set up in a prior presentation, continuing to lay down those foundational items necessary so that we can go through our normal accounting cycle, the normal accounting cycle consisting of entering transactions, usually with the use of forms housed under the plus or new button broken out by cycle, customer cycle forms, vendor cycle forms, employee cycle forms, and then managing the communication with customers, vendors, and employees using the centers, the sale center or customer center, employee center, or payroll center down here, and then the expenses center or vendor center. When we set up those foundational items, they're usually found in the cog, we've been going over these items. We're looking at one of the major lists including the which is the chart of accounts, a type of list chart of accounts can be found here. It can also be found on the left hand side under the transactions and then the chart of accounts on the right. We are now entering the beginning balances imagining that we had our prior accounting system that we're going to stop as of the end of the prior period, 12, 31, 23 in this case, and then start our new system in the current period starting January 1st, 2024. Here are our beginning balance numbers that we have been pulling in. We started with the most difficult one, that being the inventory asset, because we were tracking the sub ledger of the inventory asset. We had to pull in not just a dollar amount in the form of a journal entry possibly, but the items that we're actually going to sell. Now to do that, we had to create the items. The items will also be used when we sell the stuff using our sales forms and invoices. So in order to sell these items, we also have to think about sales tax. Are we subject to sales tax? Sales tax being a tax is going to be one of those things that will be different from place to place. So if you're in a different country, for example, you're going to have completely different tax laws oftentimes than other countries such as what we are at here. I'm typically looking from the perspective of the United States and even if you're in the United States, there are some taxes that are on the federal level, primarily being the federal income tax and then some payroll taxes, and then some taxes that are on the state and local level. In our case, that typically would fall under the sales tax. In other countries, you might have a usage tax. Sales tax is basically a type of usage tax. So it'll work in a similar fashion if that's your major type of taxing system. Note that all other accounting stuff, the double entry accounting system is basically universal. The things that differ from location to location are when the laws confuse the accounting process and that usually and primarily is with the form of taxes. So you could take everything that we're learning if you're in a different location and then try to figure out what the differences are with regards to the tax implications and then make your adjustments from there based on the location. That's also one area of specialization you might want to think about. I wanted to point that out too with the inventory. If you're a bookkeeper, you want to think about where your specialty will be. Do you want to specialize in tracking inventory? If so, you probably want to even get more specialized than that, meaning do you want to specialize in tracking like Shopify stores, Amazon stores, or possibly physical inventory retail stores? Those are all specialty areas, or possibly you want to specialize and just do more of a cashed based system and letting other people either deal with the inventory or deal with companies that don't have inventory service type of companies. Those specialty ideas will help you a lot when you're trying to pick up clients and try to hone down your clients so that you have the best kind of situation for both you and the client. We in prior presentations set up our items. If I went to my sales area here, we set up our products and services. Now, it probably would have been better if we actually thought about the sales tax first, but I think it's actually easier to see once you have the items set up to then look at the sales tax. That's why we're basically doing it this way. So the sales tax, there's three components to think about and this will be similar to a usage tax. QuickBooks is getting better and better at automating certain parts of the sales tax based on location, which is great in the United States because state taxes are more difficult to universalize in accounting software because again, they're different from location to location. So first we're going to need to turn on the sales tax, give QuickBooks what it needs to know to apply the sales tax. That's kind of the most difficult part. Once that is done, the sales tax will be assigned when we sell items. So when we have our inventory items, when we buy the items in the United States, that's not when we are recording the tax in our system. We're recording the tax, meaning we might be charged sales tax if we buy items, but that's going to be managed by the vendor who's going to be charging us sales tax if we're subject to sales tax. We have to be the tax collector and we'll just record that by the way as part of the cost if that was the case. But we have to actually track the sales tax and pay it to the government when we make sales. So that's going to happen with the invoice form and the sales receipt form. Notice that you could make sales with a deposit form, but the deposit form is not designed to use items and therefore you won't be able to use the deposit form to calculate the sales tax in the same way. So if you want to record sales with a deposit form, possibly waiting until something clears the bank and then record it with a deposit, you might not be subject to sales tax in that case because the easiest system would be like a, if you had like YouTube income or something, you might not be subject to sales tax. But if you are, then you're going to have to come up with your own kind of system to track and pay the appropriate sales tax. And that might be worthwhile in the event that that would be an easier system to use. But usually if you have to deal with sales tax, you're going to be using either the invoice form or the sales form. If I go into say an invoice form, for example, then here's our invoice. When I sell something subject to sales tax, usually for us that would be inventory items, possibly the items that our service might not be subject to sales tax. But if it was subject to sales tax, it would be calculated down here based on the location. And the sales tax will be recording basically a payable. The payable will go up. We'll have to charge it to our client. We're going to record it not as income, but a liability of payable. And then at the end of the period, which might be weekly, bi-weekly or monthly, for example, possibly even yearly, we then have to pay the sales tax to the government. That means that we're just a tax collector. They're making us their tax collector. That's what the government is doing. All right, we're going to close this back out. To set that up to make that work, there are three things. One, we set up the sales tax. Two, we have to go in here to the items. So I'm going to close this out, leave. And within the items, we have to assign whether the item is subject to sales tax or not. That will be the primary indication factor for QuickBooks to charge sales tax. But then also the last thing is we might have certain customers that are not subject to sales tax. So the default would be whatever product that we sell to someone, if it's subject to sales tax, it will charge sales tax. However, you can override that default if a particular customer isn't subject to sales tax, you can put in the customer field that they are tax exempt for whatever reason. And then that particular customer will not have the sales tax calculated. Okay, how do we set it up then? Let's go into the button over here, the hand boogie, and we'll go down to the taxes on the left hand side don't day where to go. There's your taxes. And so now we have our sales tax. So we have this special little widget to manage our sales tax. So automatically calculate sales tax for each sale, one, create an invoice or a receipt. Those are the sales forms to we calculate the sales tax rate based on date, location, type of product service and customer. Those are the things we need to set up the date and the location are going to be kind of things we need to set up as part of our setup process. So it knows when to apply the sales tax, and then the type of product, the items that are going to be assigned whether they're taxable or not, and the customer, the default being they're going to be taxed if the thing we sell to them is taxable. And then we can make an exception if they're exempt for whatever reason three, we keep your sales tax updated when laws change, so you stay compliant. And that is great because, you know, obviously, laws can change. So it's great that QuickBooks has taken more of that out of our hands for the most part, although the automation of it can confuse things sometimes, right, because it's less transparent to us. But any case, address, here's the address we have for you. So we use your physical business address to calculate your sales tax. Now, so I put this address in Beverly Hills where that's not not actual access address, but that's like a billion multi billion dollar house if you're up on the market to buy a multi million dollar house on a billion multi million dollar house. Anyway, that's the address. Now, if you have an actual store, then it's usually fairly straightforward. If you're selling something at a retail store, then people are going to be buying something from the store, you only have one address, and therefore you're subject to sales tax, possibly if you're in the United States, it would be by state and local tax. So it's still tedious, but fairly easy to set up. Where does it get more confusing when you're online? If you sell things online, then it gets more confusing in terms of who's responsible for sales tax if you're in one location and you're selling to people that are in say a different state or locale. So if that is the case, you've got it, you've got to get into the weeds a little bit more to make sure that you're in compliance with your sales tax obligation. So if you're using like a Shopify store or an Amazon or like an eBay or something like that, sometimes if you're dealing with like an Amazon, they might support you a lot of the time with the sales tax and help you to manage the, you know, the sales tax. But if you're doing your own website, or you're doing a Shopify store kind of thing, then you're more likely going to have to manage more on the sales tax and track that. So we have a whole another course or section that goes into a little bit more on Shopify and on the eBay and Amazon. So you can look at that in a little bit more detail. We're just going to do the one location right now. So I'm going to say next, these are your required sales tax agencies based on your business address, you need to collect sales tax for these agencies. Tell us how often you file so we can track your details. Your filing frequency is on your sales tax business registration. So we're, I said we were in 90210, California. And therefore, if that was our location, California Department of Tax and Fee Administration quite sounds quite draconian type of place, don't want to, don't want to be there. It sounds kind of like the Death Star in Star Wars, right? So that's who we have to pay. So then the filing frequency based on that would be annually, quarterly, or monthly, generally. So why would these be different? This will differ depending on where you are at. So you have to think about where your current location is to see whether or not you're subject to annual quarterly or monthly. And usually the general idea would be that if you don't have a lot of sales tax, then the government might be okay with you paying them annually because you don't make much money anyways. So they'll just say just give it to us in the end of the year. If you make more money, they want it quarterly because now they want their money sooner. It's starting to be significant. If you make a lot of money and then they want their money monthly, typically would generally be the idea because now it's significant and California wants to get paid or whoever collects the sales tax. California, other states, the locale, the mobster down the street, whatever it is. You know how the protection racket works around here. Anyway, we're going to then say next, I'm going to put monthly there. Do you need to collect sales tax anywhere else? If you do enough business in a state, you may need to pay sales tax even if you don't have a physical location there, learn more. So this is often the case these days, where you're selling things online and now you've got things going over across state lines. So that sales tax is one of the things that complicates that type of business. If you're in that kind of business, then you want to do more research on who's responsible for the sales tax. What type of thing are you using Amazon or Shopify or your website or whatever to sell in multiple locations and then how you're going to manage your sales tax in those kind of situations? Is it going to be something through QuickBooks when you're actually creating the sales forms, invoices and sales receipts or possibly the actual sales are being generated from another website that are facilitating the sales and so on. So again, we have another course on. So we'll say no and we'll say check that these are the tax agencies you pay sales tax to and how often you pay them. California Department of Tax and Fees Monthly Mui B to the NBN. So automatic sales tax is all set up. Check how much sales tax you owe when you have to pay and more. So take a look. Let's check it out. So now we have it set up. So we're once again, if I hit the hamburger, we're in the taxes area, which now it has the sales tax tab. It says here we have the auto save for sales tax with a QuickBooks checking account. Explorer QuickBooks checking. I'm not going to deal with that. That's another thing where they're trying to get you signed up to the checking account so that you can basically pay it automatically from your checking account. Not generally the main use I would think for having a QuickBooks checking account, the main use for the QuickBooks checking account to me would be if you want to make it easier to collect on your invoices that you'd be sending out. So I'm going to close this. It seems to me that electronic transfers in your bank feeds are sufficient generally to pay the sales tax. So we have the Select an Agency. If we had multiple agencies, we'd have a drop down here. We might have another tag or another box for multiple sales tax locations if we had more than one. So we have the information here January to January 31st, a cruel basis, more details. So this is the taxable sales that for that period gives us a little report here. Non-taxable sales, gross sales, adjustments, sales tax owed down below, status. We have all status paid due, overdue, open and tax period date. Here's the tax period date last year and then you have the detail of the items down below and we can view the tax return. Let's check that out. This is the California Department of Tax and Fees Administration tax period January 2024. So file your taxes now, print the tax form from the state's website and fill it out. Two, write a check to your agency or print one. Three, mail the form and check to your agency. Four, when you're done, come back to record the payment in QuickBooks. So in other words, what's going to happen if it's the month of January, we're going to make sales using invoices and sales receipts. We're going to charge sales tax according to the law that we're forced to do, which should be done automatically when we create those forms, which will be populated into a liability account called sales tax payable and then we're going to have to pay that to the government according to whatever format they've assigned us to pay it with and we're going to have to file information returns typically similar to like your form 1040 if you're in the United States for income tax reporting. So that should be kind of like an information form typically if you're paying sales tax basically as you go. So you might have to tell the state you would think these are my sales subject to sales tax and this is my sales tax rate and so this is how much tax I owed you and this is how much I have paid you or am paying you right and that's going to be the general idea. It should be easier than a form 1040 because the form 1040 is so complex that you end up having to overpay during the year and then make adjustments to it. So that's going to be the general idea, sales tax settings, the economic nexus could possibly help you answer questions about sales tax. So where do you need to pay tax? So if you do enough business in a state you may owe them sales tax even if you don't have a physical location there will help you figure out if you meet the threshold to pay sales tax in different states. So you can look in here for more research sales tax rules can apply in any state where you have customers find out if you need to register with any new state and so on and so on. So we'll go back that might help you to kind of figure things out and then down here we have the reports this is the tax liability report we'll possibly see this as we start to accumulate sales tax meaning when you actually issue an invoice and sales receipts with sales tax it's going to populate in a payable account a liability account which we can have a basic sub ledger for which will be the liability report. So tax taxable customer report this is the customers that are subject to sales tax and then the non-taxable transaction review. All right let's go into the sales tax settings so within here we've got the tax agency california department filing we said monthly start of tax period january here's our starting our cruel basis is what we're using if we wanted to edit it we can go into edit monthly there we can change it to a cash if we needed to if it's no longer in use we can make it inactive we can't delete it because there will be transactions to it oftentimes so we can make it inactive. We have the drop down make inactive turn off sales tax so for whatever reason you're not doing sales tax anymore you can turn it off you can add an agency here and then down here we've got the custom rates now for our practice problem purposes i'm actually going to add a custom rate because i want to make a generic sales tax which will be similar to a usage tax kind of system that that then will apply that will just be like a five percent generic tax so let me let me just make an add a rate down here and i'm going to say that it's going to be a combination and this is because oftentimes the sales tax is comprised of in the in the united states both local taxes and state taxes possibly so i'm going to call this the state let's say example state tax we're going to say and i'll say that's the name uh nickname sales tax agency now notice that they i have to pick an agency that's that's set up here i can't like make up an agency so i'm going to say it's i'm just going to pick the first one alabama and we're going to say that the tax rate here i'm going to say it's four percent and then down here i'm going to say this is the example uh local tax local tax so we might have multiple things that comprise the tax that we have to pick up and i'm going to imagine this is going to go to just the next one let's make it an a to a b let's pick up something after the a's here uh uh a c let's denver colorado denver okay and then let's say that that's going to be one percent so obviously these two don't go together in the same location but then you can add another rate if you needed to the point is i'm trying to make something that is five percent and show that you might be actually paying for different locations right so so i'm going to save that and so now you can see here we've got the custom rate uh is five percent total i hit the drop down or it's in the drop down you can see consists of the four percent that i'm imagining is from the state one percent for the local that's that's the idea and now i tried to hit the back arrow and that's what's given me this how often do you file taxes so you can find this info on your sales tax business and so on so once again i'm going to say filing i'm going to imagine it's a monthly so monthly so this is the average this is giving us some information to possibly help us out if it's uh when we file next agency i'm going to do the same thing and say it's monthly and say save okay so there we have it all right so if i go just back into the sales tax page here here's what we have orange sales tax we've got these three tags up top and the information down below now let's go into our items so i'm going to go into then uh the sales tab and i'm going to go into my products and services now i'm going to imagine that all the guitars that we have are subject to sales tax and all of the all of the other items that are not uh actual inventory not subject to sales tax so this diagnostic i'm going to say that this one is not subject to sales tax because it's a service item now if i turn on sales tax it usually by default will assign the sales tax to the item so i'm going to go into the ones i don't want to assign the sales tax to which will be the service items edit them and then when i scroll down through here you see the taxable rate so it says i will apply sales tax based on your location i'm going to edit this and you could go up here this will help us find the right tax category and search for the category if you if you want to do that but down here we have kind of like the generic where it says taxable based on location or non-taxable this impact the accounting so i'm going to say it's non-taxable and then select and save this one for example i want to be taxable so if i go into this one and scroll down it says tax it says taxable standard rate so that looks like what we want so i'm going to close this back out and just look for the ones that i don't want to be taxable such as this one because it's a service i'm going to go into that and say edit and i'm just going to say it's not taxable boom and then save it and then this one also a service will edit it and then scroll down and say tax and say that it's going to be not taxable and obviously you're going to have to look in your location to see what you know which things are or are not taxable because again it changes from locational location but hours i'm going to edit this one and say did they apply a tax here standard rate let's take away the tax not taxable on that one and then we have the service again generic service item i'm going to say it's not taxable because it's a service item and we'll say okay non taxable and then one more time scrolling down and let's say that we have the tuning here edit that one and i'm going to say that that is not taxable so this one is non taxable okay so i think we have everything there now if you want to check that quickly you can go into the cog here and then under the drop down we've got show if it's taxable so i'm going to add that and then and then if i go over here i'm going to say okay so where's the taxable one now i know it's not showing up with a check mark there's the taxable this one i'm going to go into each of them again and try to refresh it to get that check mark you might have to refresh the screen up top so i'm going to edit it and i'm just going to go into this setting to try to make sure it's all set up i'm going to say all right taxable that's the one we want save it save it and there's the check mark i'm looking for so i'd like to see that check mark on all of them so i'm just going to try to refresh it it's already on that setting but some if i go in like this it gives me the check mark that's what i'm looking for so let's do this one and i'm going to say i'll go into here it's already on that setting but if i do this it makes me feel better because it gives me the check mark so i'll do that because i want to feel better i want to feel better and that helps that helps me feel better so there it is boom and save it and then here i'm going to go in here if you just refresh the screen it might also do this because the setting is already there or possibly log back out and log back in but i'll just do it this way for now so there's the hourly so now we've got all this is an inventory inventory inventory inventory inventory okay so now if i was to make a sales form uh let's go into here plus button invoice or sales receipt let's go into an invoice this time and i need to have a customer so i'm going to just make up a customer customer one i'm not actually going to record this but i need a customer because the customer by default will have the tax settings as though they're going to be applied based on uh location so this customer is tax exempt no that's not checked off which means that it's going to be charged sales tax based on the item so then if i tab through this well let's just go down here and say that if i was to pick an ELP something subject to sales tax the sales tax line should be checked off and then it's usually good to go down to to get to the next line to make sure the sales tax is calculated so there's uh the sales tax calculation 500 and the tax being applied is is the 4750 if i want to edit the tax then i can see what's being calculated it's based on the location which is our store location and we could see it's the california state tax the california los angeles tax and the california los angeles county which is adding up in total to the 9.5 percent so it's doing all that work basically for us if i wanted to change the tax rate i can go up here and i can say now i want to go to the example tax rate and then that's just going to be the five percent right because we assigned it just to five percent and then i can say enter and so now we have the five percent at 25 if for whatever reason i needed to do some manual entry then i can enter the sales tax manually and you'd have to give it a reason basically to override it which could just be because you're trying to practice with a generic practice problem as we are trying to do so do you want to leave without saving i'm going to say yes so that's the general idea now if i i'm going to right click on this tab up top and duplicate it just to see this last bit here which would be that if i had a customer that is not subject to sales tax because they themselves are exempt even though they're buying an item that is usually subject to sales tax then we can go into the sales area and we can go into that particular customer so i'm going to say this customer let's refresh it we should have customer number one in here now shouldn't we uh let's close this out well let's just add a customer i'm going to say add customer and let's say this is going to be uh our customer two i'm going to call this one customer two okay and but down here in the tax area where's the tax or here we're going to say that this customer is exempt and then why are they exempt we'll just pick a reason federal state local tribal charitable organization let's pick that one uh exemption details and so on so we're going to say that they're exempt so i'm going to say save it and then if i go back into this invoice and we have the same item down here but i choose customer number two customer two tab then uh well let let me make a new one because possibly let me refresh this i'm going to close this out and say leave without saving and did i save it over here i did so let's make another one let's do a sales receipt this time which is the same idea but a sales receipt form customer number two boom and then down here we're going to say that we sell an elp again and then oh there it is yeah it's it's subject to sales tax you can see here but then down here it doesn't calculate it so when you see something like that you're going to say why isn't you might drive you crazy why isn't it calculating the sales tax it says it's checked off because the customer has something in there that says they're not subject to sales tax even though the item says it is subject to sales tax so you got to be aware of that of that override also if i go back to the customer here and i edit the customer and go down and i say okay and we uncheck it now they're going to be subject to sales tax it's currently based on the location so maybe this particular customer is subject to the 5% or another location so then i can i can for whatever reason override the location which is usually being used which in this case is our store to the 5% because maybe i'm selling this to someone out of state or something and i'm subject to different sales tax so that's the other thing you can do with customers so number one set up the sales tax number two assign it to the proper items that you're that you're making sales for leave without saving no i'm going to save it and then number three see if there are any customers that have exemptions to the normal sales tax rules and assign them to those particular customers that's the general process now note that i did not record any invoices or anything thus far we've just basically set up the sales tax now so if i was to go to say a report and go back to my let's just take a look at my good old trial balance under the reports on the left hand side typing in trial balance we are still at if i go from oh one oh one two four to twelve thirty one two four i keep on wanting to say two three then we're still just having those two accounts impacted with our inventory and opening balance but we're now ready to sell the inventory and start to uh be charging the sales tax as we do and as we do that i'm going to keep changing the sales tax to be that generic five percent unless i forget because i'm trying to make it a generic problem and not one just subject to 90210 Beverly Hills which is our made up location address so we'll continue with that going forward