Ask the Accountant…
Question: If I do my taxes based on when I get paid for orders, does that mean I pay my sales taxes the same way?
Answer: Not necessarily. The basis with which you calculate your income taxes does not have to be the same as your sales tax basis.
There are two bases on which to calculate taxes (income or sales tax): cash and accrual.
Cash basis means taxes are owed only after you are paid by your customer, hence it is the “cash” basis.
The accrual basis means that taxes are owed once a client is invoiced, regardless of whether or not you have been paid by the client.
The basis for income and sales taxes are selected (or mandated) at the first filing of your business. If you have filed taxes previously, you must stick with the basis used previously unless you are told by the government to do otherwise, you have grown very large, or you have a legitimate reason to switch and have approval to do so.
The bases for income and sales taxes need not be the same, but your state may legislate a specific method for sales tax. For example, California requires sales tax to be remitted on the accrual basis. Check with your accountant to confirm if and what your state might require.
Please email your questions to Harriet at Ask The Accountant.
QuickBooks Premier and Enterprise can be modified to better serve ad specialty distributors. Harriet Gatter is a QuickBooks ProAdvisor, a former accounting professor and a former ad specialty distributor. She advises ad specialty distributors to use QuickBooks Premier and Enterprise, often in conjunction with other industry-specific software, to manage the complexities of the ad specialty business, with the results being time saved, errors eliminated and an overall accurate accounting of your business. Contact her at [email protected].
