account for sales tax liabilities that predate Wave signup

adriandz

Hi there, I tried searching for this in the forum because I'm sure I'm not the first person to have this issue, but I didn't turn up anything—apologies if this has been previously covered.

In any case, to quickly summarize my issue:

1. I signed up for Wave halfway through last quarter, correctly putting in my opening bank balance, etc.
2. I then started invoicing customers and accruing sales tax liabilities as you'd expect.
3. I then filed my taxes for the quarter a few days ago. The Sales Tax Report in Wave was, of course, incorrect: it only accounted for sales that Wave "knows" about, not sales from earlier in the quarter prior to signup. No problem: I manually calculated the remainder of the taxes I owed and paid them.
4. I then categorized that transaction as a sales tax payment.

Problem: Wave now believes I have overpaid my sales taxes and the Sales Tax Report, which should display a zero balance as of April 1, is still incorrect. Of course it is: that's not Wave's fault. It all makes sense. But how do I fix it?

While writing this, I thought, okay, I could enter an invoice for the total amount of transactions that Wave doesn't know about, which would then show a tax liability equivalent to the amount that Wave thinks I have overpaid. So I did that, which fixed the issue on the Sales Tax report.

Of course, now the problem is that I can't mark those invoices as paid, because if I record a payment for them, that payment will throw out my nicely reconciled account.

Or, should I do exactly that, and then use the reconciliation feature, which will show that my account in Wave no longer matches my bank balance, and at that point I can presumably make an entry that fixes that?

Help!

AlexL

Hey @adriandz , this is a tough one that unfortunately we don't have recorded anywhere. The correct way to handle this would be to create a starting balance for your Sales Tax account that will imitate the amount that would have existed in your Sales Tax account on that date.

Now, because the Sales Tax account isn't technically a "payment" account, it won't show up in the regular transaction like you'd normally add a starting balance. This means you'll have to add a journal transaction for it, with the money moving from Owner's Equity to your appropriate Sales Tax account.

Hope this helps!

adriandz

@AlexL thank you for your response. I believe I have fixed this:

1. I removed the invoices that had already been paid, that I had added to try and rectify this issue. This threw out my sales tax report again, as originally reported.
2. I added a journal transaction, dated to the end of the quarter, consisting of: a debit of my Owner's Equity account for the amount of sales tax I had collected and owed that Wave didn't "know" about; and a credit of the same amount to "Tax collected (Liability)".

I then ran the sales tax report for the period just after I made the tax payment to the government, and the numbers came out the way I had hoped. So, I think this is fixed - but just wanted to list the specific steps I took to ensure I did this right, and perhaps to serve as an example for people in the future who may encounter the same issue.