In a Nutshell – Setting up Sales Tax in QuickBooks Online
Occasionally, I see a set of books where the business owner invoices a client and needs to charge them sales tax. They send an invoice to be paid in the future or post a sales receipt if a customer paid already in QuickBooks. One line will be for the product or service sold.
They enter a second line with the sales tax that they calculated. Often, sales tax is improperly mapped to “sales of product income” or “sales tax expense,” making the business vulnerable to forgetting to remit their sales tax to the state. That can open an unpleasant can of worms.
There is a better way!
QBO calculates sales tax automatically, reminds you when to pay it, and keeps track of much you need to pay. This keeps you in the good graces of the state tax board, which is always a good place to be.
Here’s the thing…
Sales tax does not belong to you, so it should never be posted to an income account, such as sales of product income. Nor is it an expense, as it did not come out of the business’s pocket. You simply collect it from the customer and pass it along to the state. For the business owner, it is a liability, like debt or loans.
Below is a description of how to set up sales tax in your QBO account. It pretty much follows the QBO help videos. For those who prefer to follow a set of printed steps, this can be printed out and kept as a reference guide.