Untaxed Purchase Reporting
ewb
Member Posts: 4
Is there any way to report purchases made for the business that did not have sales tax applied ? If I buy $100 worth of widgets and the seller adds sales tax (based on my NY location), I pay the 100 + 8.13 tax, so a total of 108.13. In this instance I owe NY no further sales tax. However, if I purchase $100 worth of widgets and the seller does not add sales tax, I owe NY the $8.13 in tax, as this was an untaxed purchase for the business. I cannot locate a way to generate a report on these untaxed purchases, so I can easily record my quarterly returns. Has anyone else found a solution to this problem ?
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ewb,
I would suggest creating an account where the purchases that were not charged sales tax could be warehoused. When you are ready to complete your use tax return, you would take the sum of the account for the period that you are filing and multiply by your rate. Make a note in the transaction "Use Tax Paid" in the details section and classify to appropriate expense.
I'm not familiar enough with the Purchases function of Wave since I do not use it nor any of my clients. I'm sure there might be a solution there as well. A repeating vendor should be consistent as to whether they charge you tax or not.
Mike G, CPA
www.mgfinancial.net
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I have the same question, very new to Wave. I need to pay use tax for items not having sales taxes assessed. The above suggestion doesn't seem to work because purchase amount need to reconciled since they have already been paid. I created a bill for a vendor and included the tax and recorded a partial payment leaving the tax unpaid. The tax however did not show up in any of the tax reports. The tax reports seems to capture only the taxes on invoices. Currently I am keeping a bill open open with my State as the vendor and entering a line for each instance of use tax that needs to be paid. Hopefully when the tax is paid quarterly I can balance everything in transactions and there will be a record that satisfies the State. Does anyone have any other recommendations? Is there anyway to capture the true amount owed to the State we live in on the Tax Reports?
@TaxRefresh by chance, when you set up this tax did you make sure to mark it as recoverable? If not, it won't generate a total in the Sales Tax Report under the Purchases side. You can check by clicking Settings > Sales Taxes > pencil icon next to the tax, and scroll down. It'll show you whether or not it's currently marked as recoverable.
If it's not recoverable, you can't change the existing tax. You'd need to create a new tax that's recoverable, and then apply the tax change to your bills (and other transactions if necessary). If this doesn't clear it up, let me know!
@Ryan_W thanks for your thoughts. Before I set the taxes up I spoke with our advisor to confirm that this is not a recoverable tax. It is a pass through. Perhaps definitions of ‘recoverable’ are different. We don’t get to reduce our liability owed. Thanks again.
@Ryan_W Thanks for the comment. The core issue I posted is unrelated to recoverable/unrecoverable notation. More states are deciding to collect sales (use) tax on purchases that are made over the internet from out of state vendors. Some vendors apply the applicable sales tax (as they meet the business criteria established - nexus in the state or revenue totals), but some do not. For items that are purchased without a sales tax applied, I am responsible to report the purchase total and pay the state sales tax. I can find no way to easily segment taxed and untaxed purchases for reporting purposes within Wave to make the quarterly filing easier to complete. How can this be accomplished in Wave ?
ewb,
I don't believe there is a way to automate this in Wave. I gave one suggestion above as a way to track. Another way would be the Marked as reviewed feature on the transactions page. So for example you could marked as reviewed all purchases that require you to remit use tax. The filter feature can be used to find the transactions for a particular period. Alternatively, you could use a spreadsheet to track purchases that need use tax assessed.
Keep me in mind if you are looking for a CPA.
Mike G, CPA
www.mgfinancial.net
@Mikeg I appreciate your suggestions. I've been looking at setting up a second account to deal with this, but its creating extra steps I was hoping to avoid. I have a spreadsheet that I've tracked all business expenses on, and I was hoping to ditch that in favor of a more robust accounting package with Wave. That it seems might have been a misguided wish. I don't want to maintain two systems. I would have thought that with the recent changes to the tax laws for vendors selling over the internet, packages like Wave would keep pace and provide a way to simplify the accounting. After all, that is what these packages are supposed to aid a business with. Perhaps the Wave team monitor there community forums and can add this to a requirements list they maintain. As it stands, I'm seriously thinking about looking at other packages to see what alternatives there are (as there has to be an easier way to manage business accounts than this), or returning to my spreadsheet as at least I knew that was accurate and readily provided the reports I needed to file financial information required by the government.
Ewb,
No problem. As with any accounting software the easier you make it for yourself, the more time you will have to run your business. Yes Wave has limitations but there can be workable solutions. Wave is also free. Even Quickbooks at $70 per month has it's limitations. In my experience the more layers you add, the more complexities created (time requirement) then you have increased chance of things getting balled up. Wave can be a great solution and I use it for all my clients. Not perfect by any means but nothing is, even multi million dollar accounting packages that require a department to run.
BTW - Use tax has always been required, it's more prevalent today with the increase in online sales. The recent Wayfair are allowing states to force out of state retailers to collect sales tax when before they were limited in their powers by the Quill case. Some states like NY and CA even have residents attesting to no use tax due when e filing their individual returns.
Mike G, CPA
www.mgfinancial.net
This is good discussion. I think I will keep doing what I was doing with a quarterly bill to the state. I will enter a new line per transaction and note vendor and invoice on it.
I sort of found a way to do this but it's a bit (ok, a lot) convoluted but the liability shows up in my Sales Tax report & Balance Sheet so may be worth the effort. I've attached a file with screenshots but will also try to explain it.
I created a Sales Tax called CAUT (California Use Tax) at 7.75%. I created a Discount account called "Use Tax Clearing". (I'm not an accountant; there's probably a more correct account name).
When we purchase an item without Sales Tax (in my screenshot example this was $424), I manually calculate the Purchase Price if Sales Tax had been applied (in my case, 424 * 1.0775 = 456.86).
I then split my purchase transaction. I leave the first line untouched, and enter the purchase + sales tax amount (456.86) in the second split against the same account (this could also just be added to the original amount in the first line at 424 + 456.86 = 880.56 and skip the second split but I like to keep them separate). I split a third line and choose my discount account (Use Tax Clearing) and against this line I enter the purchase + sales tax amount (i.e. 456.86) again. As this is a discountthis reconciles my entry back to the original purchase price. I then "add sales tax" onto this third line and choose my CAUT tax; it correctly calculates the tax as 32.86 (i.e. 0.0775 * 424).
When I run my Sales Tax reports & Balance Sheet the Use Tax shows correctly (see attachment).
In my P&L I show the "fudge" against Use Tax Clearing in Income and overstate the expense, so when I'm due to report my P&L I create a journal entry to clear the Use Tax Clearing account back against the relevant expense accounts (depending on how many you have it may be worth creating matching clearing accounts for each expense account so the JE is easier, or you may create an Expense based use tax clearing account and use this in split line 2 above and then it's a simple JE, however in this case the use tax amounts will report against this clearing account rather than the actual account - a trade off on simplicity vs accuracy).
Certainly convoluted but so far seems to work; see the attachment for details.