Do you sell taxable products or services? If so, you have tax rates set up in your bookkeeping software, and one (or more) may need to be changed at some point. But how should you handle this update?
The first thing I recommend is to create a new sales tax item rather than modifying the one already being used. The reason I suggest this is to make sure prior transactions maintain the correct information. Let’s assume the following:
- The original tax rate on the invoice was 8%
- The tax rate increased to 8.25% the following quarter
- The sales tax payment has been made
- A customer called in questioning an item on an invoice
If you modified the original tax rate, once the invoice is opened, it will update to the new rate and show a balance due on the invoice and sales tax report. If you don’t realize what you have done, you may inadvertently pay the balance.
I also suggest that the rate not be entered in the customer file. If a new rate applies, you would have to change the item in each client file. It is much easier to add the rate on the invoice as it is created. If you work with a lot of jurisdictions and don’t remember each one’s rate to be billed, a note can be placed on the customer (or memorized transactions may be created).
It’s important that tax rates be properly calculated and paid. Updating rates as necessary with this process will help you maintain the integrity of your prior transactions and properly calculate rates once the new percentage goes into effect.
If you have a lot of tax jurisdictions in multiple states, an option is to use an add-on software. Avalara is one that is highly recommended by many in the accounting field and syncs with Quickbooks.