Federal Excise Tax Setup in QuickBooks Online

 

Federal Excise Tax Setup in QuickBooks Online, Bookkeeper Supporting Services

Federal Excise Tax

Is your company required to charge some kind of federal excise tax in addition to the normal state sales tax that you would have to charge your customers? Well then you should read this article carefully. How to record collect and pay federal excise 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.

·         Federal excise tax is an example of an out of scope sales tax.

·         This means that it is not on the preset list of sales tax agencies provided by QuickBooks online.

·         It means you cannot use the sales tax center for this.

·         You must record this type of sales tax the old-fashioned way.

·         That means that you have to set it up yourself and the on the list of products and services as a sales tax item.

·         You also will have to do the calculation for how much to collect on the sale by yourself.

Some products such as: alcohol, tobacco, firearms and luxury items that cost more than ten thousand dollars are subject to a federal sales tax known as an excise tax.

this is a tax that behaves like all other sales tax we discussed; it is collected by the merchant and paid to the government in blocks of time that are called sales tax periods.

Dealing with out of scope Sales tax

So how do we deal with an out-of-scope sales tax? Well we have to set up an item on the list of products and services.

We have to create a current liability account in the chart of accounts to represent the amount owed to the out of scope agency.

When you have a sale like you're making an invoice or a sale receipt and need to charge this tax you simply add it to the invoice or the sales receipt right at the bottom.

Dealing with out of scope Sales tax -2 Issues

 

So there are two issues with dealing with out of scope sales tax.

First you must calculate the amount yourself each time you make a sale.

And you must keep track of the due dates yourself to remember when to send in the tax at the correct time.

If you could have a separate software for this to do both of these like excel you could set it up and it could still be very convenient.

There are apps that will help you with both and I recommend using excel for both of those two issues.

How do we setup excise tax payable in QuickBooks Online?

So how do we setup excise tax payable in QuickBooks Online? Let’s add federal excise tax payable to the chart of accounts it's a current liability Account.

so we already know how to do that we click accounting, chart of accounts in the top right we click new and then the type will be other current liability and the detail type can be  as federal income tax payable or you could leave it as sales tax payable but the name will be federal excise tax payable. And click save and close.

Now we have to add the IRS to the vendors list. Click expenses, vendors, ad vendor manually and then the name will you can just put I.R.S.  And click save.

Let’s make an item called federal banana tax and we'll make it payable monthly.

1.1% of the price of bananas and it will be additional to the state sales tax.

Now these last two points monthly and 1.1% additional two those are things you have to keep track of in excel but we can add the item to the items list.

We click the cog wheel go to all lists products and services. Now we’re going to put as a non-inventory part. So we click new and we click non-inventory part federal banana tax and of course this is not taxable because we don't want to calculate a tax on the item we're putting for tax.

So this is a tax item, not a regular item that you'll calculate regular sales tax. So put it as non-taxable and the account that it is connected to be the account we just created federal excise tax payable, save and close.

Difference between sales tax and excise tax

Let’s do three quick sample transactions to record the sales tax and the only difference between sales tax and excise tax is that it will not appear in the sales tax center but the results will appear on the trial balance.

Sales transaction posting in QuickBooks Online.

So let's imagine—

On July 11th of 2020 we sold five bananas to Betty in Massachusetts.

First Transaction

So we click new, we'll make them all invoices. Click Invoices, Betty, bananas five. It’s very important that we put the date. The date will be a very important point in this article July 11^th 2020, five bananas now she's in Massachusetts. So we need in this case to put it based on location because Betty is in Massachusetts.

However in addition to this tax we need to go to the next row and choose the federal banana tax. Of course the quantity is one we don't make it taxable and we have to calculate it our self and because it's 1.1%. That 1.1% of five thousand dollars in America is fifty five dollars. Make sure that this is not taxable.

So it doesn't mess up the original state sales tax from Massachusetts. So after this transaction we will have $312 dollars more in the Massachusetts state tax and 55 dollars more in the federal tax excise tax payable.  Save and close.

Trial Balance Analysis

Now when we go to the sales tax center we see nothing because this is one that we created ourselves but when we click reports trial balance you can see federal excise tax payable shows up for the first time as $55 and the Massachusetts tax includes the 7-11-2020 sale.

That we just made here it is 7-11-2020 sale and in the Massachusetts tax it was the amount that the invoice told us a moment ago.

2^nd Transaction

22/07/2020, six bananas sales to Allen in Maine.

So we click new invoice Allen the date was July 22^nd 2020 both in July again it was bananas it was six of them. Now those six bananas are taxable to the state of Maine. So we come down here we choose Maine sales tax rate.

Then click see the math to make sure that it calculates it so $330 dollars will go to Maine’s sales tax whether we charge federal tax or not but below this we add federal banana tax and I happen to know that in America 1.1% of six thousand is sixty six dollars.

Now we do not click the check mark because then the state tax will factor in this 66 dollars this is separate from the state tax so this is the total amount that they have to pay 6396. We click save and close. Well this is Massachusetts.

Trail Balance Analysis

So if we click reports trial balance you can see federal excise tax payable. If you double click the number it now includes both of the sales that we included federal excise tax. We now owe 121 dollars to the federal government.

If we click reports trial balance and we go to Maine double click we can see that the 66 dollars or Allen the $330 for the Maine sales tax for the July 22nd sale is in the main sales tax.

3^rd Transaction

15/08/2020, sold seven bananas to Martha manystate.

New invoice Martha manystate and we said this one was august 15th very important point bananas and it was seven bananas.

we know that the bananas are taxable but the next line we have to put the federal banana tax and we do not click the check mark because we don't want the normal sales tax to be messed up or include the federal tax so I happen to know that 1.1% of seven thousand dollars in America is seventy seven dollars. Click see the math just to make sure it calculates everything correctly. This is the amount that Martha manystate has to pay for this sale we click save and close.

Trail Balance Analysis

And go back to reports trial balance now you can see the federal excise tax payable is up to 198 dollars.

How do we know how much federal excise tax to pay?

How do we know how much federal excise tax to pay? well must be use the trial balance and the transaction report for the liability account in order to determine How do we know how much federal excise tax to pay for a specific period of time and what you would do is you would change the to and from dates in that report so that you could isolate the specific amount of federal tax owed for a particular period.

So now let's pay what we owe just for July so if we look at the federal excise tax payable it says that the total that we owe right now is a $198 but we don't know  how much federal excise tax to pay of that is owed specifically for the month of July.

if we double click you can see clearly that these two were sales during July so they are taxable and we should send them in the the money amount for July and this last one was done in august so July’s money is due in august and august money is due in September.

if you click custom you can set a from date in our example it will be July 1 to July 31 because again in our example we're imagining its monthly then click run report. Now when you run the report after isolating the specific month of the sales the balance should only include sales for that month which means the balance of the federal excise tax payable should be for that specific time range should be the amount you send in during august or during the next month.