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      How does Sales Tax work?

      Sales Tax is imposed on the price of some items and services, and is charged as a percentage of the selling price and is collected at the time of the sale. The amount of Sales Tax to charge depends on the State, City, and Country your business may operate in, and multiple or different taxes can be charged at the same time.

      The business charges Sales Tax on the government’s behalf, which means Sales Tax is not a part of your business’ income. Sales Tax must be paid back to the government (also known as tax remittance) at specific intervals depending on your government’s requirements.

       

       

      Create a Sales Tax


      To create or add a Sales Tax to your Credit Note, Expense, Invoice or Other Income entry, use the below steps:

      1. While you’re creating or editing on the:
        1. Credit Note or Invoice, click on the Add Taxes link
          Example of tax fields to fill out for credit note or invoice.
        2. Expense, click on the Tax Amount box (or Add Taxes link if in advanced settings)
          Example of tax fields to fill out for expense.
        3. Other Income entry, click on the Tax field
          Example of tax fields to fill out for other income entry.
      2. To create a new Sales Tax:
        1. Click inside the Rate field and enter the percentage of the sales tax
        2. Then click inside the Tax Name field and enter a Tax Name
        3. If needed, click inside the Tax Number / ID field and enter the sales tax number
      3. To select an existing Sales Tax, check off up to two boxes
      4. Click on Apply Taxes to save the changes.

       

      Manage your Sales Taxes

      To edit or remove a Sales Tax, use the following steps:

      1. Edit the Credit Note, Expense, Invoice or Other Income entry
      2. Click on the Tax Amount field, Add Taxes link or the Tax field
      3. Uncheck the box(es) and click Apply Taxes to save your changes.

      If you’d like to have your Sales Tax permanently deleted, please reach out to Support.

       

      Review your Sales Taxes

      Use the Sales Tax Summary Report to easily see the amount of Sales Taxes you’ve collected from your Invoices and Expenses (the Profit & Loss Report does not include Sales Taxes).

       

      Review with Accounting Reports

       

      Accounting features are only available on trials and Plus and Premium plans.


      If using Accounting, Sales Taxes can be reviewed further with a variety of these Reports:

      • Review the Chart of Accounts:
        • Taxes Payable Parent Account - Reflects all sales taxes collected on Credit Notes, Invoices and Other Income
        • Taxes Paid Account - Reflects all sales taxes paid on Expenses
        • Taxes Paid will not deduct automatically against the Taxes Payable amounts - your accountant can record this via Journal Entries instead
      • The General Ledger Report can be used to view all specific transactions affecting Taxes Paid and Taxes Payable Accounts

       

      FAQs

      I’ve submitted sales tax remittance (paid my taxes back) to my tax collection agency/government. Where can I record this correctly?

      Tax remittance can be tracked in your account by having your Accountant record this as a Journal Entry to reduce your Taxes Payable Account inside your Chart of Accounts.

      • If you are using Bank Reconciliation and this tax remittance was imported in by your bank, mark the remittance as a Bank Transfer and leave notes indicating it’s a tax remittance payment; the corresponding Expense under FreshBooks Entries will be deleted automatically
      • Otherwise, if your tax remittance is recorded in FreshBooks as an Expense, the Expense can be deleted

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