 QuickBooks Online 2024. Manage sales tax. Get ready because we're going to Bookkeeping Cloud 9 with QuickBooks Online. Here we are online in our browser searching for QuickBooks Online Test Drive, selecting a result that has Intuit.com and the URL Intuit being the owner of QuickBooks using the United States version of the software and verifying that we're not a robot. We'll duplicate some tabs to put our financial statement reports in like we do every time. Right click in the tab up top to duplicate it. Right click in the duplicated tab to duplicate it again. Back to the tab to the middle. Reports on the left. Open up one of the favorites, the balance sheet. Tabbing to the right. Down to the reports on the left. This time opening up the profit and loss. Otherwise, no one has the income statement. I'm going to close up the hamburger here. Close up the hamburger there. Back to the first tab. That's the setup process we do every time. This is where we're going to be working doing the data input. And as we populate items, we can check the end result, the financial statements on the right hand side, the right hand tabs. So if I select the drop down up top and the plus button, we've been working in the vendor cycle remembering that vendors for QuickBooks specifically represents that money is generally going out to the people that we're purchasing goods and services for so that we can run the business. The fastest way to be paying money out, the easiest way if that would be applicable or something that we can do in the industry that we are in would be to make the electronic payments using expense forms possibly by being connected to the bank feeds. First, a word from our sponsor. Yeah, actually, we're sponsoring ourselves on this one because apparently the merchandisers, they don't want to be seen with us, but but that's okay, whatever, because our merchandise is is better than their stupid stuff. 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If you would like a commercial free experience, consider subscribing to our website at accountinginstruction.com or accountinginstruction.thinkific.com. Then we could use actually physical checks, which is a little bit more confusing because you want to make sure that you enter the checks as you write the checks. So you can track the outstanding checks we talked about the accrual method entering bills and then paying the bills. Now we're going to be looking at the managing of the sales tax. This is a little bit strange because now we're putting taxes in there and whenever we put taxes in, it's going to confuse things. So in the United States, for example, we have income taxes that we have to deal with and primarily we do so by generating the financial statements of the income statement using that to help to populate the income statement that we're going to be putting together. We also have in the United States sales tax, but it's not generally on the federal level, but rather on the state and local level. So this is similar to a usage tax. So remember that with taxes, just note that there's nothing really new under the sun. All inventions of taxes are very old. It's just a question of what type of tax is being applied and what type of situation and possibly what kind of combination of taxes are they putting together. In the United States, the primary federal's tax is an income tax and the usage tax, basically a sales tax, is on many of the state and local levels but is subject to the determination of those state and local levels. Therefore, in the United States, it's not uniform across the entire country. So that adds a little bit of complexity to make sure that we're in compliance with whatever sales tax regulations we have to deal with. If you're in a static store, that's a pretty easy thing to do because you have one location and you're selling everything from that location and you just need to make sure you're in compliance with it. But a lot of things are being sold online these days, so that adds a level of complexity to think about if I sell things across state lines or something like that, then which sales tax, what kind of sales tax are we subject to. So sales tax can be quite confusing depending on the industry that you're in, but the basic concept is fairly straightforward. The reason we're addressing it here in the vendors cycle is because ultimately we're paying not really a vendor but the tax collector, but the tax collector is going to be included in our system as a vendor. So we're going to be making sales, when we make sales, that happens on the customer side of things. So the actual accumulation of the tax happens on the revenue side when we make sales and we enter invoices and sales receipts. But then when we actually make the payment of the taxes that we have collected to the government, then that's when we have a vendor. We're paying it out in essence to the vendor, the government, which you can think about in theory is giving us services. They're giving us protection money just like Tony or down the street, right? You've got to pay them the protection money to stay in business. So in order to set up the sales tax, there's a few things that we need to be thinking about. We need to turn on the sales tax, which includes applying the proper state and making sure we have the proper settings set up. And then we have to get our items set up, the things that we actually sell so that when we populate an invoice and a sales receipt, it'll calculate the proper sales tax. And then possibly less important, depending on the company that you're in, we have to make sure that if we have customers that are not subject to sales tax, that we mark them as not being subject to sales tax because by default, everybody will be subject to the sales tax. And then if a customer is not, we can mark off that the customer is not subject to the sales tax. All right, so let's look at that process. QuickBooks has a pretty nice process to be able to set up the sales tax pretty easily most of the time because it now has all the information for the different states. So if I go into the taxes down below, we have the sales tax up top. I'm going to close up the hamburger. It says here, now notice we're already using a file here in the practice file that has been set up before. So sales tax has been set up, but it still gives us this setup process to update it to like the new sales tax, you know, settings. And that helps us give an idea of the setup process. We will do the setup process for sales tax again when we do a new company file, setting up a new company file. The sales tax is one of those things that you would generally do when you set up the new company file. Once it is set up, then it should be fairly straightforward, you know, entering the sales tax going forward. But let's look at this here. Let's set up your new and improved sales tax center. You're just two steps away from the awesome experience. One, double check your business address. I think awesome is overused these days. You know, I call I've changed the term to all inspiring and then some when something is really impressive because awesome is to overused. It's like that's all inspiring and then some instead of all. This is kind of the same thing, but anyway, double check your business address. It provides the most accurate rates and reports and then to tell us who collects your tax. Okay, and then connect your old tax center. So we're going to say let's do it. Let's get started. So set up your sales tax center, double check your address to make sure it's right. Here's the address we have for you. The address is important because if that's if you're making sales and that might be the address that they determine what the sales tax rate will be based upon. And that's going to determine QuickBooks will help you to be able to decide which proper rate that you need to have. So you want to make sure you set that up. That is set up when you do the original setup process or in the cog up top. If you could see the cog, you can go into your settings here and make sure you have your address appropriately put in there. Now they already have these ones set up. I'm going to check the agency. Now I'm not going. I might not pick the proper agency board. I'm just going to pick an agency for the generic problem. I'm going to call it the California Department of Tax. And then here I'm going to say they have an Arizona. I'm going to call this the Arizona. I'm going to search down here. They have an Arizona Department. This is the state. And then we have an Arizona down here. And I'm going to set up for the district. Now I don't live in Arizona. So I don't know exactly the setup process there because again it will differ depending on the on the taxes you're subject to. But realizing the United States there's a state tax and then there could be local taxes. So you might actually have multiple people that you're paying and multiple rates that are going to have to be combined together when you actually make the sales. So let's go ahead and say next. And so there we have review your taxes. There it is. Let's save it. And then it gives you the new and improved dashboard. So let's take a look at what you need to do. So it gives you your set create and edit your taxes gives you a little to do thing on how to do stuff. But I'll get out of here for now. So how often to your file your taxes. So when you when you actually file your taxes this will be dependent upon your location and usually the locations rules will often depend on how much sales tax you have. So you might have to file quarterly if you have a lot of sales possibly or our monthly or quarterly or yearly. Usually they're going to want you to file more often if you have more sales because they're going to want their money sooner and check that you've paying them properly. And then how often do you file sales tax. I'm going to do the same thing. I'm just going to choose monthly just for the generic problem purposes sake. And so then under our sales tax tab we have the new layout. So here's the sales tax. Here's our 1099 filing run the sales tax side and in the dropdown we've got our three sales tax items. Arizona being the default. And so you can select you could change that if you want. So now it's on California. I'll put it back to the Arizona. And so there we have that. And then the status down below are the payments tax period date. So if you have everything set up properly the payment process is going to be basically an easier or payment process meaning it should kind of track what you owe basically as you go. Now when you make an actual payment to sales tax note the payment should be really easy. In other words if I go to this tab this tab over to the right what's going to happen when you pay sales tax well you're going to decrease the checking account. And the other side is going to decrease the liability. We'll talk about why it goes to a liability and not an expense later. But I just want to note that the actual form you would think would be simply a expense form or a check form or possibly a bill form right or expense or check because you're decreasing the checking account. But this is another area where we have a special check again you saw that this bill pays is a special check because because it was created by QuickBooks for a specific purpose of decreasing the accounts payable. Similar thing will happen here because we're going to be tracking the sales tax with the like widget what I would call like a widget you know little tool. And in QuickBooks it will create another special check form that will say hey this is a payment for the sales tax which is basically still just like a check it's decreasing the checking account or an expense type of form. So that is that we have the settings here you've got the economic nexus if you go into the economic nexus it gives you more information where do you need to pay sales tax 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 find out if you meet the threshold to pay sales tax in different states. And then you can look at the threshold and see if you have to pay sales tax in the different states. And then we have the sales tax settings here if I go into the settings. Here's the tax agencies that we have set up. We can add the agency we can turn off the sales tax from here if we need to we have the cog to include inactive agencies. If you needed to make an agency inactive and then and you wanted to search for you can go there we have the rates down below here are the different rates. Let's add another rate just to show the process so I'm going to add a rate. And I'm going to say it's going to be let's say a combined rate. And that's might be the case if you have to have as the example shows right here this is the example. If you have the total at 831 that needs to be taken out so that you can pay people but you're actually paying that 831 to three different agencies the state the county and the city for example. So if I said if I call this generic tax for the state generic generic I think I don't know if I spell that right and I'm just going to keep that as the nickname and then the agency. Let's say the agency is the the let's choose a different place. Let's call it Alabama. I'm just going to choose an agency that's there for the generic sales tax. I'm going to make it 4% and then we're going to say we have a generic sales tax for the city. Let's say and I'm just going to again choose a random agency because there is no agency because I just made that up. But now it's going to add up to 5% right so that so the total rate will be 5% but 4 is going to go to one the state and then one to the city is the general idea of our generic problem. So then if I if I add that then you can see these two down below that are combined here the the for the one add up to the five and then we've we've got our our agencies that we added that are we're actually going to pay up top. Now the the next thing that needs to be set up. I'm going to go back into my hamburger is if we go into the sales tab and we go into our products and services products and services. These are the things that we sell when we make an invoice. So all of this stuff has to have whether or not a sales tax is going to apply to it. So I'll show you just the setup process here. Let's say that we're going to say a new item. Let's say it's an inventory items of oftentimes service items might not be subject to sales tax. So inventory items often are so I'm going to say let's say an inventory item is going to call it item one generic item one not going to put an SKU category. I'm going to say that the initial quantity on hand. I'm going to actually add an initial quantity. Let's say we have five on hand. This will actually create a journal entry as though we purchased this inventory so I can then sell it and show you the process of selling it. I'm going to say that happened. Let's say I will say it on the 17th reorder point. I'm not going to add a reorder point inventory asset. That's the account that will be affected when we purchase the inventory and when we sell it increase with purchase decrease with sale sales amount. Let's say we sell it for 180. Let's say we sell it to the sales account. Now with the sales tax here it is. This item might have special tax considerations. Select edit sales tax to view your recommendation and we'll make sure it's taxed correctly. So taxable the standard standard rate is being picked. So if I edit the sales tax. Notice it's basically using its method to try to pick basically the sales tax, which means it's basically going to apply the sales tax to your location would be the default. So describe this product or service. So if I put the item here, whatever it is, let's say it was a guitar that we're selling your search and enter a different item. We'll say we're selling a car seat. I put in a car. I'm going to say we're selling a child's car seat so we can select that item and then allow it to pick our tax options. And then we have the other options down below taxable based on location only non taxable. This is my impact and accounting on your book. So if it was a non taxable item, we can select it as non taxable. If we just want to say it's going to be taxed based on the location, then we could say it's going to be a taxable based on the location done. And so there we have it. So it should be taxed based on the location, which if nothing else is selected would be our location. And then it might, if the customer has a different location, then you might have to choose or use the customer location. So then the cost, we're going to say it's 100. We sell it for 180. We buy it for 100. Cost to goods sold will be impacted when we purchase it. Let's save it. So now we know that we have this on the books and it's subject to sales tax. We have five of them on the books now. So if I made an invoice plus button and invoice and we sell, let's say to customer number one. We sell the customer number one, which I'm just going to generically add here. But note that as I add the customer, what might be important on the customer side will be dependent upon. So it could be different if you have, if it's an in store location where the sales tax might be dependent on your location. It gets a little bit more confusing when you're selling online because then you're going across, you know, state lines and whatnot. So then you have to dive into the details of the sales tax. But if I go down here, we know that we have the additional information for taxes. And if the customer was tax exempt, you can make the customer tax exempt, meaning we turn on sales tax. Sales tax is generally going to be guided by the location. Sales tax will be applied if the thing that you sell, the item that we put in is subject to sales tax unless we set up the customer as exempt. It might be exempt because it's a charity or something like that, or it's not the end user or something like that. So I'm going to say save it. I'm not going to check that off and save that. And we're going to say this is going to be happening on, let's say 010724. So there we have it. So okay. And then we're going to sell our item. Let's say this was item, item number one. And so there is our item. It's subject to sales tax. And when I click off of it, it picked the sales tax up based on the location. And it put the sales tax in here at the 17. Now I could change this sales tax. I could say I want to change it to the generic 5%. Change it to the generic 5. And then it calculates based on the 5%. Now what's this going to do when we record it? It's actually a little bit complex. Now that when you see it, right, we're going to say, okay, it's an invoice. So it's going to increase the accounts receivable. We'll talk more about invoices later. We haven't looked at them in detail, but we'll say the invoice is going to increase accounts receivable by the full amount, including the sales tax. That's the 189. And then we're going to say the other side is going to go to income. The income is only going to go up by the 180, not including the sales tax. Why doesn't it include the sales tax? Because in theory, the tax is going to be taxing the purchaser, not the company. So the government is trying to treat it as though you have been made into, as the business owner, the tax collector. But the tax is being paid by the customer. Therefore, we're not going to record the tax of the $9 in this case to income and then record the expense when you pay the $9 to the government. But rather, we're going to put it on the books as a liability and then decrease the liability when you pay it. So the sales tax is payable is going to go up by the $9 and the inventory is going to go down by the cost, which was $100. And the cost of goods sold is going to go up by $100, which is an expense. The net impact on net income is going to be the $180 sales price minus the cost of $100, giving us $80. If you look at that over here, let's just do a quick journal entries for the invoice. Sometimes it's easier to see with debits and credits here. I don't think I spelled that right, invoice. So we're going to say, okay, what's going to happen? AR is going to go up. AR is going to go up. We know that the sales is going to go up, which is going to be income. We sell the thing for negative $180 because it's a credit to sales. That's debits and credits. And then I'm going to say that's going to be a payable. I'll make another account here, which I'll call boom. I'll call sales tax, say tax payable, and we'll copy the formatting down. I know this isn't an Excel course. I'm just trying to show it in a journal entry format. And so the sales tax payable is going to be impacted. So this will be equal to this times 0.05%, the $9. And then we're also going to have, I'll put in another journal entry. So the receivable is going to be the negative sum of this. Oh, crap. I know my fingers were too fat and it caught both of them. Okay. So then that adds up to 0, right? So because debits equal the credits, with debits or positive credits are negative in this process. And then we're going to say that the cost of goods sold is going to go up and the inventory is going to go down by $100 because that's what we purchased them for in theory. So accounts receivable is going to go up and that has a sub account that's also going to impacted the customers. I have to track that by customers. Income is going to go up and then the sales tax is going to go up. Sales tax instead of income going up by the full $189. Income only goes up by $180. Sales tax goes up by the $9. And so that means we've got the income here. And so then I'm going to say we have the cost of goods sold is going to go up and the inventory is going to go down, which means it's going to be negative here because I didn't put the inventory on the books. So as you can see, there's kind of a lot going out on, but the impact on the net income is $80. This is actually revenue. That's why it's green because it's a credit minus debit $80 revenue. That's basically what's going on here. So if I was to record that, let's save it and close it and just check that out. So now we've got, if I make this for the 010124 to 123124, run it. We've got the accounts receivable going up. Closing this. There's the AR 189 for the full amount. I can drill down to the invoice if I want to check it out. There it is for the full amount. And then going back, the other side goes to income. I'm going to change this again from 010124 tab 123124 tab, run it. And we should have income going up by the 180, just the 180 this time, not including the sales tax back to the balance sheet. We can see on the liability side, we should have a sales tax payable, which is somewhere, I forget which one we chose. But one of these, notice that put it in here, not by sales tax payable, but rather by, I think I put it into Alabama. No, $7. It should be like $9. I don't know which one I chose, but it should be in one of these items. Oh, I see it's in both of these. So yeah, there's the 720 and there's the 180. So if I go into this, there it is. And then I can go into here. And so that's part of it. And remember that $5, we broke out to the two locations, 4% and 1%. So now broke it out by who we're going to pay it, by the vendor that we're going to be paying. And then inventory is going down. We're not really focusing on inventory right now, but just inventory is going to go down. And then on the income statement, we know that cost of goods sold is going up. So the net impact on net income, $80. Okay, so if I go back to the first tab, so that's the general thing. But the other thing to just keep in mind is if you go into the customer here, and if I went into that customer, customer number one, and I was to edit it and say that that that the their tax exempt, let's say, so now this customer is tax exempt. And notice down here, it says based on location, so I could also change the sales tax that would be applicable for the particular customer. So it says here based on the location, but I might change it. I could change it down here to whatever like the whichever one I think is applicable for that particular customer. If I say they're exempt from the taxes, then I can give a reason federal government, state government, local tribal charitable, let's say charitable organization. Let's keep it there. We'll save it. And let's just show that if I hit the drop down, make another invoice and say this is for customer number one again. And we have everything the same. I'm going to sell item number one. Boom, everything's the same. But this time, no sales tax is being applied because we said the customer is going to be exempt. So the general rule here, I'm going to close this back out. I'm not going to record it. Do you want to save or leave without saving? Yes, is when we set up the sales tax, three things we've got to keep in mind. First, the big one. We have to set up the sales tax, which is obviously the most detailed process of it, which means, and to do that, we need to know which where we're going to be subject to sales tax, which if it was a store, it's pretty easy. But if you're shop, if you have an online system, it can get more complicated quite quickly if you're selling across state lines, right? Then you got to think about where it's going to be. And the system will generally be a lot easier within QuickBooks to set the proper tax rate because QuickBooks is getting a lot better at being able to see what the sales tax obligations would be on location by location basis. So you don't have to manually set that up usually because it could be based on the location within the system. Then you got to make sure that your items are set up properly because these are the things that you're selling and the items are usually going to be the things that will determine whether or not you're subject to sales tax or not by the thing that you're selling. Are you selling inventory items or service items, for example? And then the customer could have further, if you go to the customers, most customers, if you're in a store, will simply be subject to the sales tax, which will be chosen by the default of whether or not you turned on sales tax on the item that you're selling. But some customers, again, might change if they're selling it online and they're in different locations, number one, and some customers might be exempt from sales tax for whatever reason. And in that case, you can tell the customer not to be subject to the sales tax in which case, even though you choose an invoice that has sales tax on it, it won't show the sales tax because the customer says it's exempt from sales tax. Thank you.