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Setting up sales tax

From: QuickBooks Pro 2010 Essential Training

Video: Setting up sales tax

If you sell only services, you typically don't have to collect sales tax and you can skip this section completely. But if you have to charge sales tax and send it to tax agencies, you also have to setup QuickBooks to track sales tax. QuickBooks has sales tax codes and sales tax items. Tax codes simply tell the program whether something is taxable or not. Some customers don't have to pay sales taxes, for example, like non-profits. You can use the sales tax code to set a customer or an item as tax exempt or not.

Setting up sales tax

If you sell only services, you typically don't have to collect sales tax and you can skip this section completely. But if you have to charge sales tax and send it to tax agencies, you also have to setup QuickBooks to track sales tax. QuickBooks has sales tax codes and sales tax items. Tax codes simply tell the program whether something is taxable or not. Some customers don't have to pay sales taxes, for example, like non-profits. You can use the sales tax code to set a customer or an item as tax exempt or not.

Then when you create an invoice or sales receipt for a customer, the program uses the customer's tax code and item tax code to figure out how much sales tax to charge. On the other hand, sales tax items are what you used to define the sales taxes you do charge, like states sales taxes for each day you sell in or different types of local sales taxes. To turn on Sales Tax on the Edit menu choose Preferences. In the Preferences dialog box, click Sales Tax.

Click the Company Preferences tab, because sales tax applies to everyone who uses the company file. In the Do you charge sales tax section, select the Yes option. If you already have a sales tax item setup, you can choose the sales tax item you charge most often. QuickBooks automatically assigns that item to customers, although you can change it in a customer's record. QuickBooks has two sales codes built- in, Tax and Non, for taxable status and non-taxable status.

The program automatically applies them as the standard taxable and non-taxable sales codes. Most of the time these two sales tax codes are all you need. Depending on whether you use cash or accrual accounting, which you learned about in the introduction, you owe sales taxes to tax agencies at different times. If you use accrual accounting, you owe taxes when you create an invoice that charges sales tax. If you cash accounting, you owe them when the customer pays you.

QuickBooks automatically selects monthly for how often you pay sales tax to tax agencies. If your company doesn't collect much sales tax, you might have to pay quarterly or even yearly. Here select the most frequent period you are required to pay. Then click OK to save your sales tax preferences. If you need additional sales tax codes, for example, to classify customers by type of tax exemption, on the List menu choose Sales Tax Code List.

Click Sales Tax Code > New, then type in up to three characters for the code. For example, GOV for a government tax exemption. If you want, type a description to make up for the limited three character code name. Select Taxable or Non-Taxable and then click OK. To setup a sales tax item, open the Item List. On the homepage, click Items & Services. Click Item > New.

In the New Item dialog box, choose Sales Tax Item. In the Sales Tax Name box, type a name like California State Tax. In the Description box, type a description that you want to appear on invoices. In the Tax Rate % box, type the decimal number for the tax rate. 8.25 for California State Sales Tax. QuickBooks fills in the percent for you. In the Tax Agency dropdown list, choose the vendor you set up for this sales tax.

If you haven't set up the tax agency as a vendor yet, you can choose Add New to open the New Vendor dialog box and create the tax agency right then in there. If you have to apply several sales taxes to a customers invoice. For example, state tax, county tax, and city tax, you can create a sales tax group. Create a new item and choose Sales Tax Group. Name the group. For example, Sacramento. In the table, add each sales tax item you have to charge for this group.

Here I'll add a Sacramento city tax, and then click OK to save the sales tax group. Since I have already created this one, I'll cancel. If you have to apply several sales taxes to a customer's invoice, for example, state tax, county tax, and city tax, you can create a sales tax group. Create a new item and choose Sales Tax Group.

Name the group. For example, Sacramento Tax Group. In the table, add each sales tax item you have to charge for this group. QuickBooks applies the total percentage to taxable items on invoices, but tracks the sales taxes separately, so you can pay each tax agency what you owe. Click OK to save this sales tax group. To set a customers tax status and the sales tax they pay, open the customer's record. On the homepage, click Customers.

Then right-click the customer and choose Edit Customer Job. Click the Additional Info tab. QuickBooks automatically sets the sales tax code to Tax. To assign the sales tax item that applies to the customer, choose it in the Tax Item dropdown list. If the customer is tax exempt, choose Non or another non-taxable sales tax code you have created. When customers buy products to resell, they don't pay sales tax, because then the products would be taxed twice.

In this case, type the customer's resale number in the Resale Number box. After you have added the tax information to the customer, click OK to save the customer record. To make an item taxable or non-taxable, edit the item. In the Item List, right-click the item and choose Edit Item. In the Edit Item dialog box, in the Tax Code dropdown menu, simply choose Tax or Non, and then click OK to save the item.

After you set up customers and items to be taxable or non-taxable, QuickBooks takes care of adding sales tax to invoices or sales receipts and can track the sales tax you owe to the different tax agencies.

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This video is part of

Image for QuickBooks Pro 2010 Essential Training
QuickBooks Pro 2010 Essential Training

69 video lessons · 21744 viewers

Bonnie Biafore
Author

 
Expand all | Collapse all
  1. 8m 19s
    1. Welcome
      52s
    2. Editions of QuickBooks
      3m 24s
    3. QuickBooks bookkeeping basics
      2m 46s
    4. Using the exercise files
      41s
    5. Disclaimer
      36s
  2. 9m 12s
    1. Opening a company file
      2m 4s
    2. Using the QuickBooks menus and home page
      2m 49s
    3. Touring the Customer, Vendor, and Employee Centers
      2m 32s
    4. Navigating between QuickBooks windows
      1m 47s
  3. 10m 50s
    1. Gathering the information you need
      2m 4s
    2. Creating a company file
      5m 33s
    3. Converting from another program
      3m 13s
  4. 8m 19s
    1. Naming and numbering accounts
      3m 36s
    2. Creating an account
      2m 26s
    3. Making an account inactive
      2m 17s
  5. 14m 50s
    1. Creating a customer profile
      3m 40s
    2. Adding customer information
      4m 33s
    3. Creating a job
      2m 18s
    4. Making customers inactive
      1m 39s
    5. Creating a vendor
      2m 40s
  6. 43m 35s
    1. Why use QuickBooks items?
      2m 59s
    2. Creating a service item
      4m 26s
    3. Setting up time tracking
      2m 53s
    4. Entering time
      4m 19s
    5. Tracking mileage
      4m 34s
    6. Creating an inventory item
      6m 7s
    7. Creating a non-inventory item
      3m 34s
    8. Setting up sales tax
      6m 59s
    9. Setting up discounts and charges
      3m 46s
    10. Creating a group of items
      2m 16s
    11. Making items inactive
      1m 42s
  7. 30m 46s
    1. Creating a purchase order
      3m 8s
    2. Entering a bill
      4m 37s
    3. Recording inventory you receive
      3m 47s
    4. Paying bills
      4m 5s
    5. Handling a credit from a vendor
      5m 2s
    6. Writing a check for expenses
      3m 17s
    7. Paying with a credit card
      1m 40s
    8. Paying with cash
      2m 53s
    9. Paying sales tax
      2m 17s
  8. 35m 5s
    1. Understanding invoices, statements, and sales receipts
      2m 23s
    2. Creating an invoice and filling in header fields
      2m 55s
    3. Adding items to an invoice
      5m 7s
    4. Adding billable time and cost to an invoice
      5m 57s
    5. Using subtotals, discounts, and other charges
      3m 6s
    6. Creating an estimate
      2m 49s
    7. Handling a customer credit
      4m 57s
    8. Creating a statement charge
      3m 7s
    9. Producing a statement
      4m 44s
  9. 14m 44s
    1. Setting up print options
      4m 13s
    2. Aligning forms with printer paper
      3m 0s
    3. Printing one or more forms
      4m 29s
    4. Emailing a sales form
      3m 2s
  10. 14m 8s
    1. Receiving a payment
      3m 49s
    2. Assessing finance charges
      4m 9s
    3. Creating a sales receipt for a cash sale
      2m 39s
    4. Depositing payments
      3m 31s
  11. 10m 37s
    1. Preparing to reconcile a bank account
      1m 50s
    2. Reconciling transactions to your bank statement
      3m 14s
    3. Correcting discrepancies
      5m 33s
  12. 9m 51s
    1. Using the Report Center to find reports
      3m 0s
    2. Running a report
      3m 45s
    3. Printing or saving a report
      3m 6s
  13. 6m 8s
    1. Why use journal entries?
      3m 3s
    2. Creating a general journal entry
      3m 5s
  14. 13m 39s
    1. Creating a new user
      4m 58s
    2. Backing up your company file
      6m 10s
    3. Restoring a company file
      2m 31s
  15. 27s
    1. Goodbye
      27s

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