The Sales Tax function in QuickBooks is a separate module from the rest of the program, even though it doesn't seem like it. Because it is a separate module, sales tax payments should be made according to how the module works.
The Wrong Way
The unsuspecting QuickBooks user computes the sales tax return. Then, he/she generates a regular check in QuickBooks (a regular check is always designated CHK in the register). Perhaps this check is even correctly posted to the Sales Tax Liability account. Regardless of which account it is posted to, using a regular check to pay sales taxes is not how QuickBooks was designed. Unfortunately, QuickBooks allows this transaction to occur.
The Right Way
1. Compute the sales tax return. Then, adjust the QuickBooks tax payment for rounding differences, if necessary.
In California, the BOE-401 requires every line to be rounded to the nearest dollar. This will create a small difference in the amount of sales tax owed on the return, verses the amount of sales tax owed according to QuickBooks.
In order to adjust for the difference, and if you are certain you are ready to record the payment in QuickBooks, from the Vendors menu select Sales Tax. Then select Pay Sales Tax. Click the button that says Adjust. Make the Adjustment Date the same as the final day of the tax reporting period. Put an Entry Number if you wish. In the Sales Tax Vendor box, select the sales tax reporting agency. For the Adjustment Account, select an expense account called Sales Tax Adjustments (create it if you don't already have one). Then, select the appropriate circle, depending if you are increasing or reducing the amount of sales tax to pay in QuickBooks. Fill in the correct amount of the adjustment. Record a memo if you wish. Click Ok.
2. Generate a Tax Payment check.
At the Pay Sales Tax window, click the taxes you are paying, as well as the adjustment you just made. Make sure the all of the other information is correct, particularly the Pay Sales Tax Through box - this must have the same date as the final reporting date on the sales tax return. Save the transaction.
The check you just generated appears now in the check register that you selected in the Pay Sales Tax window. Go and look for it there. You will see it as a unique type: TAXPMT, rather than CHK or BILLPMT.
Final Thoughts
Here's why QuickBooks users should pay sales tax utilizing the correct method:
- QuickBooks generates Tax Payment checks (TAXPMT) rather than regular checks.
- QuickBooks users can perform specific searches for these types of checks.
- QuickBooks can compute the tax amount - this can then be used as a guide to make sure the sales tax return was prepared correctly.
About the Author: Jennifer A. Thieme is a Registered Tax Preparer and a Certified QuickBooks ProAdvisor who enjoys writing about tax and accounting issues. She brings unique insight, clear instructions, and over ten years experience to all of her business articles. Owner of Solid Rock Accounting Services, Jennifer's clients enjoy these same benefits on a personal and regular basis. You can too - visit http://www.jenniferthieme.com and contact Jennifer today.