Sometimes, you may have to collect taxes for some goods and services that you are providing. With QuickBooks, you can easily maintain a record of such taxes accurately that can help you in tracking and remit them to the preferred tax collection.

In this series of articles, we are discussing about Sales Tax. This whole series covers the usual workflow of Sales Tax in QuickBooks Desktop.

These articles will also help you in processing other tasks related to Tax in QuickBooks such as:

If you face any issue regarding sales tax in QuickBooks Desktop, you can refer to Resolve common sales tax issues.

If you process a Sales Tax Liability report but taxable sales amount doesn’t appear or if there are some invoices from another month or period appeared on the present report, you need check whether you are using cash basis or accrual. However, the sales tax amount owed by you gets affected by the accounting method or the report basis.

  • Accrual: The sales tax is calculated by QuickBooks whenever you send an invoice to your customer. You will be shown the full tax amount on month when the invoice was created irrespective of the payment amount or date.
  • Cash: QuickBooks keeps a track of payable sales tax only after you receive the payment. Once you receive full payment against the invoice, the entire sale tax amount will be visible on the month when you received the payment. It can become a bit complex. But, if there are any non-taxable line items on the invoice or you receive half or a part of payment or you have applied some credits/debits to the invoice.

Following are some possible scenarios that can arise whenever you receive partial payments for cash basis sales tax.

Scenario 1: Completely taxable invoice with a partial payment

For completely taxable invoice and receiving a partial amount, sales tax amount will be added to the month when the partial payment is received. The payment get applied to the taxable sales by QuickBooks and then calculation is reversed for the rest of the sales tax that you need to pay.

Example:

  • Taxable Invoice amount: $1000
  • Payment amount: $200
  • Sales Tax rate: 8%

You can calculate the taxable sale amount by dividing the collected payment with 100 plus sales tax rate and then multiply with 100.

$200 (payment) / 100 + 8 (tax rate) x 100 = $185.19 (Taxable Sale)

Calculate the tax a tax amount by subtracting taxable sale from payment amount.

200 (payment) – $ 185.19 (taxable sale) = $14. 81 (Tax Amount)

NOTE: In case of some partial payments, you need to include all the payments processed under invoice and use above formula to calculate the total taxable sale amount and tax collected.

Scenario 2: Invoice with a non-taxable item and a partial payment

If an invoice is created with a non-taxable item and partial payment, it’ll be visible on the month whenthe partial payment was received. QuickBooks applies the payment percentage to the sum amount of taxable items to keep s tracking of taxable sales.

Example:

  • Taxable item amount: $1000
  • Non-Taxable item amount: $100
  • Payment amount: $200
  • Sales Tax rate: 8%

Calculate the payment percentage by dividing the total payment received by total due amount.

$200 (payment) / $1180 (total amount due) = 16.95% (rounded off payment percentage)

Calculate the taxable sale amount by multiplying the taxable item amount with the payment percentage.

$1000 (taxable item) x 16.95% (payment percentage) = $169.50 (rounded off taxable sales amount)

Calculate tax amount by multiplying the taxable sale with tax rate.

$169.50 (taxable sale) x 8% (tax rate) = $13.56 (tax collected)

NOTE:

  • QuickBooks will multiply the payment percentage to each taxable item if the invoice contains some multiple taxable items.
  • In case of some partial payments, all the payments can be added that were made against the invoice and follows same formula to calculate the sum amount of taxable sale and tax collected.

Scenario 3: Invoice with an applied credit and a partial payment

If an invoice was generated with a non-taxable item and a discount/credit is applied to it and then a partial payment is received, sales tax amount appears on the month when the partial payment was received. QuickBooks applies the payment percentage to the taxable item sum to calculate the taxable sale.

Example:

  • Taxable Invoice amount: $1000
  • Non-taxable item amount: $100
  • Discount/Credit: $100
  • Payment amount: $200
  • Sales Tax rate: 8%

Calculate the payment percentage by dividing the payment you received with the due amount.

$200 (payment) / $1072 (total amount due) = 18.66% (rounded off payment percentage)

Calculate the taxable sales amount by multiplying the taxable item amount and payment percentage.

$900* (taxable item) x 18.66% (payment percentage) = $167.91 (taxable sales amount)         * $1000 (total taxable items) minus $100 (credit/discount)

Multiply the taxable sale with the tax rate to calculate the tax amount.

$167.91 (taxable sale) x 8% (tax rate) = $13.43 (tax collected)

NOTE:

  • QuickBooks will multiply the payment for all the taxable items if there are some multiple taxable items in the invoice.
  • If you have received some partial payments, all the payments can be added that are processed against the invoice. You need to use the same formula to calculate the total taxable sale amount and tax collected.

Reach Us For Help

Reading this full article should be helpful for you in understanding how to handle cash basis sales tax in QuickBooks Desktop. This is not a much complex thing to do but you can face some issues. Managing taxes is one of the most important aspects of any business and you definitely don’t want any kind of compromise with it. In case you face any issue, call us at our toll-free QuickBooks Support Phone Number +1855-565-6250 for instant solutions.

Handle Cash Basis Sales Tax In QuickBooks Desktop

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