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The Role of Sales Tax in QuickBooks 2015
The Role of Sales Tax in QuickBooks 2015

Nobody likes paying taxes. It doesn't matter if you're an individual or company.   If you're a company, you may not like having to collect sales tax either, because with all the varying sales tax rates, just setting up your system to collect sales tax can be a headache that you wish you could avoid. 

QuickBooks makes it easy to set up sales tax, then to collect it from your customers. It also makes paying your sales taxes easier than perhaps you've imagined.   In this article, we're going to walk you through the steps of setting up your business to collect and pay sales tax using QuickBooks.

Turning on Sales Tax in QuickBooks

The first step in setting up sales tax in QuickBooks is making sure the feature is turned on.

To do this, go to Edit>Preferences. Click on Sales Tax on the left, then the Company Preferences tab.


Make sure that Do You Charge Sales Tax is marked as Yes.

Next, go to the Your Most Common Sales Tax Item dropdown list. Choose the Sale Tax Item or Sales Tax Group Item that you apply to move of your customers.



Assign sales tax codes that you will use on invoices.

Select when you owe sales taxes, and when you pay sales taxes.

Click OK when you are finished.

About Sales Tax Preferences

Be aware that not all the preferences that you need to set are up to you.   You don't decide when your sales taxes are due. A tax agency decides that. It's usually based on how much you collect.   You should receive a notice regarding the payment interval. When you do, update that in Preferences.   Once you set these preferences, then add sales tax for the first time in an invoice, QuickBooks creates a liability account for you. It is called Sales Tax Payable.

In the Preferences window, QuickBooks asks you two questions regarding how you pay taxes.

  • When do you owe sales tax?    If your sales taxes are due on the date when you add them to an invoice, this is accrual basis payment.   Select As of Invoice Date (Accrual Basis).   If your taxes are due when your customers pay the invoice, then it is a cash basis payment. Select Upon Receipt of Payment (Cash Basis). QuickBooks will calculate the sales tax you have to pay when you generate sales tax reports. 

  • When do you pay sales tax?  If you don't collect a lot of sales tax, you might only have to pay once a year. However, if you collect thousands a month, the tax agency may require that you pay monthly or quarterly. Your tax agency will let you know when you have to pay sales taxes.

Sales Tax Codes and Items

Sales tax codes state if an item is taxable or not. These codes can also be applied to customers for taxable and tax exempt customers.


Sales tax items give you the ability to calculate sales tax charged by the state and local governments for the items on your invoice.   For example, sales tax can vary by county in a particular state.

Assigning a Sales Tax Code to a Customer

To tell QuickBooks whether a customer is charged sales tax or is tax exempt, go to the Customer Center. Click on the name of the customer for which you want to assign a tax code under the Customers & Jobs tab. Right click on the name of the customer and select Edit Customer: Job.

You will then see the Edit Customer window.


Next, click on Sales Tax Setting on the left.


Select Tax if the customer is taxable.

Select Non if the customer is tax exempt.

Click OK when you are finished.

Assigning a Tax Code to an Item

To assign a tax code to an item, go to either the Create Item or Edit Item window.


Select Tax if the item is taxable in the Tax Code field. 

Select Non if the item is not taxable.

Click OK when you are finished.

Creating More Sales Tax Codes

If you need to create additional codes to further classify customers, you can do so in QuickBooks. If you have a lot of tax exempt customers, you may want to create more tax codes to be able to classify them by whey they're exempt, such as nonprofit, wholesaler, etc.)

To create more sales tax codes, go to Lists>Sales Tax Code List.

You will then see the Sales Tax Code List dialogue box.


Click the Sales Tax Code button, then select New.


In the Sales Tax Code field, type up to a three character code that will help you know the purpose of this tax code. We are going to enter NP for Nonprofit.

Enter a description for the sales code, then check if the code is taxable or non-taxable.


Click OK when you are finished.

About Sales Tax Items

Sales tax codes specify whether items or customers are taxable or non taxable. Sales tax items tell QuickBooks the rate at which items are taxed. Since sales tax rates can vary based on where a customer lives, sales tax items are assigned to customers. 

Creating a Sales Tax Item

To create a sales tax item, go to Lists>Item List. 


Click the Item button, then select New.

You will then see the New Item dialogue box.

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In the Type field, choose Sales Tax Item.

Fill in the fields:

  • Sales Tax Name . Type in a name for the tax, such as the name the tax authority gave it. You can also use a name that will be easier for you to indentify, such as Ohio Sales Tax. You can also include the four or five digit code that some states use for sales taxes. 

  • Description . Type in a description of the sales tax. 

  • Tax Rate (%) . Enter the percentage rate for the tax.   QuickBooks will add the percent sign for you. 

  • Tax Agency . Choose the tax authority who collects the tax. If it's not listed, you will need to add the tax authority as a vendor. Click <Add New> to create a new vendor.

Click OK when you are finished.

Sales Tax Group Items

You can use a Sales Tax Group item when you have a customer who lives in an area where multiple taxes must be collected.   For example, state sales tax, county sales tax, city sales tax, and local sales tax.   The customer will only see the total tax on their invoice instead of all of the different taxes.   In the meantime, QuickBooks keeps track of the sales taxes that you owe to each different agency. 

To create a Sales Tax Group item, create a new item.

Under Type, choose Sales Tax Group, as shown below.


NOTE: Just remember that before you can create a Sales Tax Group item, you must create all the sales tax items that will be included in the group first.

Fill in a name for the group, then a description.

In the table, add the sales tax items to be included in the group.

Click OK when you're finished.

Running Sales Tax Reports

Sales tax reports will show you how much you owe and the authority to whom you owe the money.

To run these reports, go to Reports>Vendors & Payables, then choose one of the following reports.

  • Sales Tax Liability summarizes the taxes collected for each tax agency. It also show taxable and non-taxable sales.

  • Sales Tax Revenue Summary displays dollar values for taxable and nontaxable sales. 

Paying Sales Tax

If you want to pay the sales tax you owe, go to Vendors>Sales Tax>Pay Sales Tax. This opens the Pay Sales Tax dialogue box.


Select the bank account you want to use to pay the tax. 


Make sure the date shown in the Show Sales Tax Due Through matches the end date of your reporting period.


Put a checkmark next to the taxes you want to pay.

Make sure to check the "To Be Printed" checkbox if you want to print the check.

Click OK when you are finished. 
Setting Up a Budget in QuickBooks

In this section, we are going to teach you how to create your budget. This is something that is optional in QuickBooks. You do not have to create a budget in order to use QuickBooks as your accounting program. It's an optional feature for people and companies who want to use it. It is also a very beneficial feature because it helps you plan your income and spending. If you have so much cash rolling in that you don't have to worry about spending, then great. You will probably never need a budget, but if you are like most of us, this is a section you won't want to miss. The good news is that if you have taken the time to create a really good Chart of Accounts, you are already on your way to creating a solid budget. 

Here are some basic budgeting tips to follow before you ever bring QuickBooks into it:

  • Plan your income as well as your expenses. 

  • Always include some cushion in your budget plan.

  • Compare your actual income and spending to your planned income and spending. 

  • Make adjustments if you need to.

  • Don't spend more just because you are starting to make more.

Setting Up a Budget in QuickBooks

Go to Company>Planning and Budgeting>Set Up Budgets.   If this is your first time setting up a budget in QuickBooks, you will see the dialogue box to create a new budget.

Choose the year that you want to budget. This is the fiscal year.


Now, choose the type of budget you want to create (pictured above). Then click Next.


Give QuickBooks the criteria that you want to use to budget, as well as instructions. You can use Customer: Job information, class, or no additional criteria. Answer it by checking the option button next to the criteria you want, then click Next again. 


In the next window, tell QuickBooks how you want to create a budget. 

You can:

  • Create a budget from scratch. If you choose this, you'll manually enter amounts for the accounts you want to track. 

  • Create budget from previous year's actual data.   Choosing this will automatically enter the monthly totals from the previous year for each account. 

Click Finish.

You will then see the Set Up Budgets window.


Create your budget. Set the amounts that you want to plan for each account. Click on the monthly amount you want to enter for the budget, then enter in a value. 

Entering Values in the Budget

To add budget values in the Set Up Budgets window, click the account for which you want to enter values.   Once you click on the account, the cell for that row's first month is selected.

Enter a value for that month. Use the Tab key to enter in values for subsequent months.

Using Copy Across

In the Set Up Budgets window pictured below, you can see a Copy Across button located in the bottom left hand corner.


This allows you to copy a number from one cell in a row to all the cells in the same row that are to the cell's right.

To use it, type a value in a cell, as we've done below.


Now click the Copy Across button.


Using the Adjust Row Amounts Button

To the right of the Copy Across button is the Adjust Row Amounts button. This button allows you to increase or decrease monthly values by either a dollar amount or a percentage.   An example is if you want to increase all values by 5%.

Click the Adjust Row Amounts button.


Select if you want to start the increase as the 1st month or the selected month.

Now choose if you want to increase or decrease the values – and by what value.


Click OK.



Adjusting a Budget

If you need to adjust your budget, go to Company>Planning and Budgeting>Set Up Budgets. Select the budget from the Budget dropdown list, then make changes. 


How to Forecast Profits and Losses

If you want QuickBooks to forecast your profits and losses based on previous year's income and expenses or on actual numbers that you enter, go to Company>Planning and Budgeting>Set Up Forecast. 


Select the year for the new forecast, then click Next.


Just as you did with creating a budget, specify if there is any additional criteria, then click Next.


Choose how you want to create a forecast. 

You can:

  • Create a forecast from scratch.

  • Create a forecast from the previous year's data.

Click the Finish button.

Project Cash Flow

QuickBooks can also predict your cash flow. Just go to Company>Planning and Budgeting>Cash Flow Projector. Again, follow the onscreen instructions to set this up. QuickBooks walks you through step-by-step and lets you know the information you need to input, just the same as when you set up a budget and forecast.

Creating Customer: Job or Class Budgets

QuickBooks does not allow you to have several versions of a fiscal-year budget. However, you can create different types of budgets.  By that, we mean that you can create a budget by customers and jobs – or classes.

To create a budget by customers and jobs or classes, go to Company>Planning & Budgeting>Set Up Budgets.


Click the Create New Budget button at the top right of the Set Up Budgets window.

You will then see the Create New Budget window.


Choose the calendar year that you want.   Set the budget type to Profit and Loss. 

Click the Next button.


Select if you want to create a Customer: Job budget or a Class budget. You can only create a Class budget if you are tracking classes.

Click the Next button.


Choose if you want to create the budget from scratch or create the budget from the previous year's data.

Click Finish.

In the Set up Budgets Window, go to the Current Customer: Job field.   Select the customer and job for which you want toset up a budget using the dropdown menu.


Click Save when you are finished.  
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