Question

• Discuss sales tax and how QuickBooks makes the process easier.
• Explain how tax is set up in QuickBooks (hint: a sales tax "item:"). Can multiple items for sales tax be set up? If so, why would a company want to do so?
• Demonstrate how to create a sales tax group.

Answer 1

Sales Tax :

Sales tax is tax paid to Government for sale of certain goods and services. Normally, it is collected from customers and then paid to the Government.

Using Quickbooks for Sales Tax :

Quickbooks automatically calculates sales tax based on the sales tax rates predefined while setting up. So the process of recording becomes easier and faster.

Multiple Items for Sales Tax :

Multiple items for sales tax can be set up in Quickbooks.

A company may want to set up multiple tax items if it is selling different products having different tax rates or is selling in different regions where different tax rates are applicable.

Setting up Sales Tax in Quickbooks:

To start recording sales tax in QuickBooks Desktop, you need to turn on this feature and set up sales tax items or tax groups.

1. Go to the Edit menu, then select Preferences.
2. On the Preferences window, select Sales Tax then go to the Company Preferences tab.
3. Select Yes to turn on sales tax.
4. Set up the sales tax items or sales tax groups for each county, district, city, etc. where you collect sales tax. Click Add sales tax item to do this.

   Sales tax item

   Sales tax group

5. Assign sales tax codes. Sales tax codes help you track taxable and non-taxable sales and/or customers. Setting up and assigning the correct sales tax code allows you to run a report that divides the total taxable and non-taxable sales. When you turn on sales tax in QuickBooks, two tax codes are automatically created: TAX (taxable) and NON (non-taxable). TAX is used for items and customers that you need to collect tax for. NON is used for items and customers that are exempted from tax such as non-profit organizations, out-of state sales, or items that your customers will resell.

   Set up the non-taxable status of an item

   Set up the non-taxable status of a customer

   Create specific tax codes:

6. Set the Sales tax basis (Accrual or Cash). Take into account your company’s accounting an preference.
7. Set up your preference for paying the sales tax (Monthly, Quarterly, Annually).
8. Select OK.