handling taxes on bills

Posted by Laura on March 10, 2009, 7:08 pm

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>> >

>> > > Say I receive a bill (incoming invoice) for $105. $100 for office

>> > > paper and $5 for local tax. I normally assign the expense of the

>> > > paper to an expense account, say office expenses. Is there any

>> > > reason to assign the tax ($5) in the bill to a different account

>> > > than say the paper itself or is it better to simply assign all

>> > > $105 to the office expense account.

>> >

>> > > Said in another way, is there any business reason I should care

>> > > about the taxes i pay on purchases and does QB do anything with

>> > > them?

>> >

>> > > thanks

>> > > Ian

>> >

>> > Sales taxes paid on purchases are part of the cost. Just post them

>> > to the same account as the rest of the items.

>> >

>> > The only time you need to track sales tax is the ST collected from

>> > customers.

>> >

>> > --

>> > Laura

>> Thanks Laura.

>> How about for inventory items that I resell. If I pay taxes on those

>> purchases i think they can offset the sales tax we collect on our

>> sales (and ultimatley pass on). Is there some way QB manages this?

>> (FYI - we dont do this yet but I just want to understand it)

>> thanks

>> Ian

>> ********

>> Most companies that purchase items for resale DO NOT pay sales tax on

>> those items--usually the customer pays the sales tax. In some states

>> the reseller pays the tax and not the customer.

>> I don't think that I have seen a case where both the reseller and the

>> customer paid taxes on the same item. You should check your state

>> sales tax rules to see what applies to your company.

>> QB is setup to track the sales tax collected rather than the sales

>> tax paid.

> If you have a copy of QB that is written for your area, it normally is

> equipped to handle taxes according to the way the authorities require it

> to be processed. For example we have a Federal Sales tax that is collected

> on all goods and services, when you pay it you accumulate the tax paid and

> subtract it from tax collected on sales, if you don't have enough sales

> tax collected you get a refund. We also have a Provincial Sales tax that

> is only collected on retail sales, all items purchased for resale are

> purchased tax exempt. For items purchased as an operating expense, the

> cost of the item and the tax paid is charged to the appropriate expense

> account.

The US version of QuickBooks is setup to track US sales tax. Unfortunately,
each STATE handles sales tax differently. They all have different rules as
well as different rates.