3 Steps How To Do Sales Tax Accounting For Small Businesses

(doylc.com) How To Do Small Business Accounting Sales Taxes Life - There are currently 44 states in the US that levy a sales tax. Municipalities can also levy sales taxes. Whether you're an accounting firm responsible for filing your clients' sales taxes or a small business filing your own sales taxes, there are ways to simplify the process. You can program the accounting software to reflect the VAT situation of a specific municipality and the VAT will be calculated automatically once the data has been entered. Remittance forms have yet to be processed and either the company or the customer can process such forms. Before the transfer forms can be processed.

• How to learn when to collect sales tax

Know when to charge sales tax. There are several instances where you would not charge sales tax. These include buying a product with the intent to resell it (wholesale purchases), commodities, and sales to non-profit organizations.

For example, if you are a florist, you would buy the flowers from a wholesaler and then resell them in your shop. You don't pay sales tax, but your customer does.

If you manufacture and sell raw materials that are used as parts to manufacture other goods, those items are usually considered exempt from sales tax.

Non-profit organizations are also exempt from sales tax. They must present a sales tax exemption certificate upon purchase, which they can obtain from the Treasury Department.

Determine if the buyer is a state resident. In the past, running an online or mail order business meant you didn't have to charge sales tax for out-of-state customers. Now states are changing corporate tax laws and are referred to as origin-based or destination-based for sales tax. The difference is critical to understanding what sales tax you must charge an out-of-state customer.

Origin-based VAT states require businesses to charge local sales tax to all customers, regardless of the customer's state of residence. Destination-Based States do the opposite.

Find out about sales tax rules and rates. There may be special circumstances where the sales tax rate may vary and you are not required to collect it. For example, some states only collect sales tax on clothing if the price is over $500. Many states do not collect sales tax on groceries, but do collect taxes on other items that can be purchased at a grocery store, such as: B. stationery and toiletries.

Contact your Treasury Department to find out the sales tax rate and when to collect it.

Some states require you to submit forms and report taxes online. They may not accept paper forms. Contact your state to learn how to properly report your sales taxes.

• How to preparing the data

Obtain the government transfer form. You can obtain this from your state office for finance and taxes. Before data is entered into the spreadsheet, layout the spreadsheet based on the information requirements specified in the referral forms. Row descriptions should precede all data. Determine which cells contain the formulas for calculating sales tax.

You need to calculate sales taxes for a specific month or quarter. Create different tabs in your spreadsheet for different months and quarters.

Determine if the customer is a company or a contractor. In states like Arizona, it matters whether the customer is a retailer or a contractor. For contractors, each individual transaction that resulted in income, whether taxable or non-taxable, must first be entered line by line in the table. For retail businesses, the total of all income, both taxable and non-taxable, should be entered in the table with row descriptions that indicate the type of income.

Enter data in the table. Create separate columns to report all taxable sales, tax-exempt sales, and the tax amount due. Enter a formula below to add the sum for each column.

Use a point of sale (POS) system. A point of sale device or system can automatically track all sales while calculating and recording the tax levied on each sale. They can be programmed for each state's sales tax and will often automatically upload the data to a spreadsheet for you.

A point of sale system often includes a cash register, a debit/credit card reader, a computer with a POS installed, and/or a barcode scanner.

• How to preparing the remittance forms and liability accounts

Set up sales tax liability accounts. The business owner serves as a source of income between the consumer and the government agency. You must keep records of how much tax you have collected and create VAT liability accounts for each customer, e.g. B. Sales Tax Liabilities. The liability is fulfilled when the sales tax is paid.

If you are a contractor, you would record your sales tax as a business expense.

Fill out the transfer forms. Once you have filled out the forms with the data from the spreadsheet, submit them to the government agency with the sales tax payment. Or the customer wants to receive the forms and make the payment directly.

Keep detailed records. All backup documents such as invoices and sales receipts must be kept for seven years. These documents are required for the sales tax audit.