Lesson 5-2: This free QuickBooks tutorial will show you how to create the first sales tax item in QuickBooks Pro 2013. This will also be the “Most Common” sales tax item, which means that when you create an invoice, this will be the default sales tax item in the Tax field at the bottom of the invoice. Of course, this option can be changed, but a Most Common sales tax item cannot be deleted. QuickBooks has a default sales tax item called “Out of State,” but there is no additional information for this item. It does not have a sales tax rate or a Tax Agency associated with it. This tutorial will show you how to edit the default sales tax item in addition to adding the tax agency and a tax rate. Also, you will learn about sales tax codes, how to choose when your company will owe sales tax and when do you pay sales tax. At the end of the video tutorial, I will create a sample invoice to show you how the sales tax item is used. To create the first sales tax item, perform the steps in the video.
Here is a summary of the steps that were performed in the video:
1. You can view QuickBooks’s default Sales Tax item but clicking the Edit menu, then click Preferences at the bottom.
2. Make sure you select Yes to the first questions which asks “Do you charge sales tax.” If you do not select yes, you will not be able to make any adjustments in the dialog box.
3. In the “Assign Sales Tax Code” field, there are two options: Taxable Item Code (Tax) and Non Taxable Item Code (Non). You will use this code for each line item on every invoice that you create. It will determine if you are going to charge sales tax for the related line item. For example, if you live in a state where tangible goods are taxed, but services are not taxed, then you will select “Tax” for the tangible goods line item, and you will select “Non” for the service line item.
4. The next field is called “When Do You Owe Sales Tax?” There are two options in this field: As of the invoice date, or Upon receipt of payment. Your choice is going to depend the type of accounting that you business is engaged in. Does your company use Accrual Basis accounting or Cash Basis accounting? You must confer with your accountant to determine the type of accounting your company uses.
5. The next field is called “When Do You Pay Sales Tax?” It is imperative that you contact the Tax Agency to which you owe the sales tax and find out when the sales tax is due. Most Tax Agencies want their taxes to be remitted monthly.
- A Tax Agency is usually a state or local government entity – such as the state department of revenue – that dictates the tax rate in the area. Any company that conducts business under the Tax Agency’s jurisdiction is required to collect sales tax on behalf of the Tax Agency and submit that amount in accordance with the Tax Agency’s regulations.
6. To view QuickBooks’ default Sales Tax item, click the Lists menu, then click Item List. Double-click the default sales tax item and change the information in the correspinding fields.
7. Give the Sales Tax item a name. For example, if you are creating a sales tax item for your local tax agency, then use the name Local Sales Tax.
8. Enter the sales tax rate in the appropriate field. You can contact the tax agency in that area to get this information if needed.
9. Use the drop down arrow and select “Add New” to add a new tax agency. When the New Vendor dialog box appears, enter the name and contact information for the tax agency. This information will be used to submit the sales tax that your company has collect on their behalf. Click OK to save your changes.