How to Set Up Non-Taxable Products & Services Record tax exempt Customers in QuickBooks Online.

 

How to Set up Non-Taxable Products & Services Record tax exempt Customers in QuickBooks Online.

Does your company have non-taxable Products & services or even tax exempt Customers? Well then you need to learn how to Set Up Non-Taxable Products & Services Record tax exempt Customers in QuickBooks Online.

QuickBooks Online Sales Tax

If you have any questions about QuickBooks Online Sales Tax. You can leave them in the comment section below and I’ll do my best to help you and of course if you feel the article helped you I hope you will click following the blog and get updates on new articles that come out all the time.

Set up non-taxable Products & service

Some customers or clients may be exempt from our requirement to charge and collect sales tax.

There could be many reasons for that.

Some products or services we sell may also be non-taxable.

You must check the rules from your own state's tax department in order to determine who may be eligible for non-taxable sales and which products or services you may indicate as non-taxable for sales tax purposes.

For example……

Let’s imagine that apples are now non-taxable Products for sales in Massachusetts.

Well that's very simple. We would have to open the list of products and services and change the status from taxable to non-taxable for that specific item.

We click the cog wheel and go over to products and services. Now we select apples by going to the row of apples and clicking edit and if you scroll all the way down where it says sales tax category you can choose non-taxable and then you click save and close.

Now read what happens in our example…

 Let’s imagine on June 18^th, 2020 we sold two apples and one banana to Betty boop. The payment was directly deposited into your bank account.  

Which means this time we're going to make a sale receipt instead of an invoice.

What will be the result in the trial balance?  

So what will be the result in the trial balance?  After we record this sale receipt. Well we know the gross sales will increase by twelve hundred dollars because one banana is a thousand dollars and two apples are two hundred dollars.  The tax will only be based on the one thousand dollar banana and that's why the Massachusetts sales tax will only increase by 6.25%  of the price of the banana.

Because only the banana is taxable, even though the wholesale is twelve hundred dollars the tax is only 62.50 dollars and of course the cash in the bank would increase by the entire amount 1262.50.  The sales price of everything plus the eligible tax.

How to Record Sales Receipt

let's take a look how to record this sale receipt in the top left we click + new and we go down to sale receipt now we choose the customer betty boop and of course we put the date you have to go back to June 18th of 2020 in order to make this work and we go down to the products and service when we choose apples.

What happens when we choose apples is nothing but look what happens when we choose bananas same thing one up.

Let’s make the quantity of apples become two.  If we click the check mark next to apples no tax is calculated in the bottom right.

If we click the taxable check mark next to bananas you can see that after we go down and click see the math that's a little explanation.  You actually have to click see the math after you apply the tax.

Now again read the tax as you can see is 62.50 which is 6.25% of only the bananas not the apples.

Again if I remove the taxable from the apples and click see the math to recalculate nothing happens but if I put that back and I remove the tax from the bananas and again click see the math you see then the tax is removed the tax only shows up when I choose the check mark. Next to the bananas and click see the math and then close the explanation.

so that proves that even if it's checked off as taxable it will not add to the sales tax as part of the transaction because we have already set apples to be non-taxable Products & Services in the products and service lists.

Of course when we click save and close or actually we're not clicking save and send we're clicking save and close.

So now when we go back to the sales tax center you can see we had said we have $62.50 currently accruing that we have not yet paid because this time period is set just showing what's owed as of now November of 2020.

Trial Balance Analysis

If you click reports and your custom reports trial balance you can see that the cash on hand increased to the 1250 or increased that amount and became one thousand two hundred fifty.

Because it was slightly negative it was negative by like twelve dollars and fifty cents before that and of course Massachusetts department of revenue payable increase.

Let’s take a look at this account payable double click. You can see that only the $62.50 was added on this date from this sale.

If you click reports trial balance and you click cash on hand you see cash was negative by twelve fifty and then we added a positive twelve sixty two fifty.

That explains that number and of course sales just shows the gross amount you double click it's just going to show you the sale amount of 1200 and not the tax. so that's the result when you make an item non-taxable.

Record tax exempt Customers in QuickBooks Online

How to Record tax exempt Customers in QuickBooks Online

Alan is a Non-taxable customer or no longer a taxable client. So how to Record tax exempt Customers in QuickBooks Online? You click sales you go over to the list of customers and will edit Alan. This is what you do: you click the check mark next to the customer you wish to edit. Then double click their name when their specific details come up as far as the list of transactions.

Then you can click edit next to the customer name and you will get back into the customer information window. The tab to click is tax info and what you can do is. You can click the check mark here if it is unchecked so if you click the check mark this customer is tax exempt now.

If you want you can choose one of the reasons why this customer is tax exempt and you can fill in additional details. If this information is not enough but this little section is extra data the only important thing is clicking this check mark and clicking save okay.

I guess we have to pick a reason that makes us so we choose others. You could choose whatever reason suits you in this situation but you have to put some so I click save.

Record Transaction after setup non-taxable customer

We’re ready for this transaction let's imagine

On March 20, 2020 we sold two bananas and two apples to Allen, same idea but look what happens when we actually do its cash today.

Well let's assume it's cash today so two apples and two bananas to Allen.

We click + new sale receipt. Be very careful of the date we want back on march 20th of 2020. The customer is Alan. Now we know that bananas are taxable as an item but notice if we click see the math nothing happens even though we choose bananas.

That’s because Alan the customer is non-taxable and of course apples are already non-taxable so it doesn't matter or we have to put two but it doesn't matter. if we click the check mark on both of them nothing will be calculated when we click see the math because this customer is non-taxable save and close.

Trial Balance Analysis

When you look at the reports you can see that nothing changed in the trial balance from a moment ago even though the sales went up and the cash went up the tax due is the same look at the tax section nothing changed here.

We still owe sixty-two dollars and fifty cents and nothing more because Alan was a non-taxable customer. Look what happens if we reopen that sale receipt and change it to Betty boop.

Look what will happen in the tax center and the trial balance to find any transaction we click reports open the trial balance we know that this is a sale receipt so it's in cash.

So we double click and here's the date March 20th double click now. Look what happens in the bottom right when we change Alan to Betty boop. Remember both items are checked off as taxable even though only the bananas are taxable.

So we're going to change this to Betty boop and scroll down and notice the tax automatically changed to hundred & twenty five dollars because we know that Betty is taxable and we know that only the two thousand dollars of bananas is taxable and that's why it calculated a hundred and twenty five click save and close.

Now when we go to the tax center we can see that for this current period we only owe 62.50 but if we reset the date range to include all of the taxable transactions and click refresh.

Now we have a time period showing up here that was past due hundred and twenty-five dollars  because it's including everything regarding the sales date you have sales during this period that was due during July and sales during this period.

That was due in April and you have sales in this period that were actually paid and that's the result when you change taxable to non-taxable for customer’s items.