Example of Sales Tax Record Keeping
A sales tax is not deductible from your business income taxes because it is not considered part of the income. Sales tax is normally calculated at the end of the sale and is paid as an addition to the overall sale. Businesses forward the sales tax on to their state or local taxing authority.
When you are figuring out your gross income, take a moment to consider whether the tax is included in the business's income or not. You may have to back out the tax from the total gross income to get your net gross income for tax purposes.
Other People Are Reading
-
Daily Recording of Gross Income
-
Business such as restaurants and retail stores use cash registers to record sales. Today's cash registers can be programmed with sales tax information. Closing out the day's sales will require printing out the cash register's report. This will usually have a printout of how much was made in sales and how much sales tax was collected. These figures should both be entered into the business's financial records.
Manual records should have two columns available, one to record the sales and one to record the collected sales taxes. When these figures are added together, you should have the total gross income that has been deposited to your account.
Computer records will follow the same general rule of thumb. The gross sales will be listed as sales and the sales tax will be credited to the sales tax account. The deposits for the day should be the total of both amounts.
Computer-Based Periodic Sales Tax Recording
-
Businesses may record entries on an irregular basis such as a manufacturing plant or a farm, which has fluctuating sales based on seasons. Good bookkeeping is paramount to recording the correct information for sales tax.
Computer-based bookkeeping will record the amount of the sale and credit it to the income of the business. Any sales tax that is received will be credited to the sales tax payable account. When it is time to report and pay the sales taxes, the computer will multiply the total amount of sales by the correct sales tax percentage. When the amount is paid, the sales tax payable account will reset for the next reporting period.
-
Manual Sales Tax Record Keeping
-
A business that records all income, including the sales tax, as a single entry into their records, will need to subtract the sales tax before calculating its revenue report.
To calculate the sales tax, take the full amount of and divide it by 1 plus the sales tax rate. For example, if your sales tax rate is 7.5 percent and you had sales of $359, you would divide 359 by 1.075. This gives you a net gross receipt of $333.95.
Use the $333.95 as the amount to report your gross sales to your taxing authority and multiply it by the sales tax rate to figure the amount to forward to your state taxing authority.
Retention of Records
-
Retain copies and records of your sales receipts for tax purposes. This is important if your business is selected for an audit by any taxing authority including the state or federal government.
Warning
-
While it may be tempting to not record a cash sale into your books, you may run into numerous penalties and interest charges by under-reporting your gross revenues. It is much better to report everything than to get caught and possibly face jail time for tax evasion.
-
References
- Photo Credit Calculator image by Alhazm Salemi from Fotolia.com
