How Do I Account for Sales Tax paid with Quicken Premier 2020?

James J

We have a very small sole proprietorship, and we need to collect and pay state sales tax. Although I've bought the business version of Turbo Tax, I'm still using Quicken Premier for everything else. We only sell in one state. We pay the sales tax monthly to the state.

In basic terms a small child could understand , can anyone give me a good idea of how to track sales tax with Quicken Premier?

Will it work if I simply create an income category of "Sales Tax Collected" and for every item sold I can make split transaction in Quicken with "Sales" and "Sales Tax Collected" as the categories?

Or should I create a liability account?? If so, I'm not exactly sure how to do that, and how that will work when I pay the money to the state.

Tom Young

If you're a cash basis taxpayer then using the "Sales Tax Collected" Category would work. When you receive revenue you'd use a split entry along the lines of:

Debit (increase) Cash in Bank Account               $XXX
Credit (increase) Sales Tax Collected Category  $YYY
Credit (increase) Sales Revenue                           $ZZZ 

Of course $YYY + $ZZZ = $XXX.

Then when you pay the state the entry is:

Debit (decrease) Sales Tax Collected Category  $AAA
Credit (decrease) Cash in Bank Account             $AAA

But using a Liability Account work work exactly the same as using a Category, it just wouldn't "swing" the number through your P&L.

Debit (increase) Cash in Bank Account             $XXX

Credit (increase) Sales Tax Liability Account    $YYY
Credit (increase) Sales Revenue                         $ZZZ

Then when you paid the sales tax the entry is:

Debit (decrease) Sales Tax Liability Account      $AAA
Credit (decrease) Cash in Bank Account            $AAA

Use whichever method that makes the most sense; to me using the Account is "cleaner" because collecting sales taxes isn't really "revenue" to you and paying those sales taxes isn't really an expense.  You're simply acting like a collection agent for the state.

Even if you go to using an "Account" - which is "accrual" accounting - for tax purposes you'd still recognize sales taxes as "revenue" and "expenses."

NotACPA

I'd use a Liabillty account, as the Sales Tax that you collect is owed to the State.  Doing that, you'll have a constant view of what's owed ... until you pay the state and the amount in the Liability account goes to $0.

Tom Young

If you're a cash basis taxpayer then using the "Sales Tax Collected" Category would work. When you receive revenue you'd use a split entry along the lines of:

Debit (increase) Cash in Bank Account               $XXX
Credit (increase) Sales Tax Collected Category  $YYY
Credit (increase) Sales Revenue                           $ZZZ 

Of course $YYY + $ZZZ = $XXX.

Then when you pay the state the entry is:

Debit (decrease) Sales Tax Collected Category  $AAA
Credit (decrease) Cash in Bank Account             $AAA

But using a Liability Account work work exactly the same as using a Category, it just wouldn't "swing" the number through your P&L.

Debit (increase) Cash in Bank Account             $XXX

Credit (increase) Sales Tax Liability Account    $YYY
Credit (increase) Sales Revenue                         $ZZZ

Then when you paid the sales tax the entry is:

Debit (decrease) Sales Tax Liability Account      $AAA
Credit (decrease) Cash in Bank Account            $AAA

Use whichever method that makes the most sense; to me using the Account is "cleaner" because collecting sales taxes isn't really "revenue" to you and paying those sales taxes isn't really an expense.  You're simply acting like a collection agent for the state.

Even if you go to using an "Account" - which is "accrual" accounting - for tax purposes you'd still recognize sales taxes as "revenue" and "expenses."

splasher

First off, I am not a business owner, but I would do the split with the "Sales tax Collected" method.

My rationale is that those funds are in your checking account until you pay them and if you put them in a liability account, how would your checking account reconcile unless you added that account back into it.

When you pay the state, use the same category, theoretically at the end of the day on the last day of the month, you run a report for that category, write the check, enter it into Q and the report would then show $0 for that category.

Once again, that is my non-business take on how to do it.

Hopefully, someone else will chime in and either agree or tell you I'm all messed up and give you a better process.

Tom Young

@splasher

"My rationale is that those funds are in your checking account until you pay them and if you put them in a liability account, how would your checking account reconcile unless you added that account back into it."

That's not an issue at all.  The cash you collect for sales taxes still gets deposited into the checking Account it's only the "other side" of the accounting entry that affects the liability.

James J

> @Tom Young said:
> If you're a cash basis taxpayer then using the "Sales Tax Collected" Category would work. When you receive revenue you'd use a split entry along the lines of:Debit (increase) Cash in Bank Account               $XXX
> Credit (increase) Sales Tax Collected Category  $YYY
> Credit (increase) Sales Revenue                           $ZZZ 
> Of course $YYY + $ZZZ = $XXX.Then when you pay the state the entry is:Debit (decrease) Sales Tax Collected Category  $AAA
> Credit (decrease) Cash in Bank Account             $AAABut using a Liability Account work work exactly the same as using a Category, it just wouldn't "swing" the number through your P&L.Debit (increase) Cash in Bank Account             $XXXCredit (increase) Sales Tax Liability Account    $YYY
> Credit (increase) Sales Revenue                         $ZZZ
> Then when you paid the sales tax the entry is:Debit (decrease) Sales Tax Liability Account      $AAA
> Credit (decrease) Cash in Bank Account            $AAA
> Use whichever method that makes the most sense; to me using the Account is "cleaner" because collecting sales taxes isn't really "revenue" to you and paying those sales taxes isn't really an expense.  You're simply acting like a collection agent for the state.Even if you go to using an "Account" - which is "accrual" accounting - for tax purposes you'd still recognize sales taxes as "revenue" and "expenses."

Can I pull the thread on this a little? For the situation where I'm using a liability account.

For the sake of argument, let's say the item cost is $100 and the tax rate is 10%. So I charge the customer $110.

1. $110 enters my checking account

2. Into my checking account's ledger I create a split entry for a total of $110:

Sales Revenue: $100
[Transfer in from Sales Tax Liability Account]: $10

3. At end of each month when we pay the sales tax, I create an entry in my checking account:

[Transfer out to Sales Tax Liability Account]: $10



Like that??

Tom Young

Yes, that's correct. 

James J

Setting up a "Sales Tax Liability" account seems to work pretty well, but it gets tedious fast having to enter every sale as a split transaction (Sales plus the transfer in from the Sales Tax Liability account).

I guess a program like Quickbooks automates this process? So you can tell Quickbooks the tax rate on a given item, and the program automatically separates from the tax collected from the revenue?

There's not a version of Quicken that does that, is there?

Depending on our sales, I might end up simply not tracking the tax for every sale transaction. Instead, I'll just enter every with a category of "Sales", and then once a month pay the sales tax using an expense category of "Sales Tax Paid". The downside to this, is that my monthly revenue looks artificially high, and to know my true revenue I have to subtract the sales tax I paid that month.

I'll try the method with the liability for a couples months

Tom Young

The Business version does seem to have some sales tax support:

https://www.quicken.com/support/working-sales-tax-account

This seems to require some sort of "invoicing" process and I don't know if that's applicable to your business.  If you revenue is generally cash/check and you don't need the detail of each and ever revenue/sales event, then another approach is to simple enter the total of each day's sale as one entry.