One of the many pains of small business owners is keeping track of sales taxes.  For many governments and jurisdictions, you are required to collect sales taxes on income (sales tax payable) and keep track of sales taxes paid on expenses (sales tax receivable)

Sales Tax Payable

As stated above, this is the money that you charge and collect when receiving income and you are responsible for remitting (paying) the sales tax portion to the government. This is usually a positive amount (i.e. $100)

Sales Tax Receivable

This is the sales tax you have paid while incurring expenses to run your business.  Generally, you are expected to keep track of this yourself and submit this to the government so you can get some money back.  This is usually a negative amount (i.e. $-100).

Non-Eligible Sales Taxes

Many governments jurisdictions apply restrictions on how much expenses you can deduct while operating a business.  For example, if you only use your car 30% of the time and spent $100 on sales taxes to buy gas for the whole year, you would only be able to deduct $30 of the sales tax spent for tax filing purposes.

Keeping track of sales tax payables and receivables in Clarity Accounting…

To ensure that all your sales taxes are properly tracked within Clarity Accounting, please take some time to read the Tax Set Up Instructions help file.

Viewing Sales Tax by Income and Expense Category in Clarity Accounting

To get an overview of how much sales taxes you are charging for your income (sales tax payable) and your expenses (sales tax receivable), please refer to the following instructions:

1. Log in to Clarity Accounting
2. Go to the “Profit and Loss” section under “Reports”
3. Select a date range by entering dates or entering a column (i.e. “last year”)
   
4. Under the “by” section drop down, select “Tax”
5. Under the “focus” section, leave blank for a view of all taxes charged by income and expenses (sales tax payables and receivables).  Choose either “income” or “expense” for a breakdown of sales taxes charged (for income) or paid (for expenses).  Use the blank field as highlighted in the screen shot below to view sales taxes that are applicable to both “income” and “expenses”.
   

Sales Tax Remittances to the Government

Calculating sales tax receivables (the sales tax the government owes you) and payables (the sales tax you owe the government).

1. On the left navigation bar, click on “Taxes” under the “Setup” section.
   
2. You will find a section called “File Sales Taxes”.
   
3. Select the Filing Date, the type of Sales Tax you are filing (GST for Canada’s Goods and Services Tax), the starting date and the end date.  Note: The filing date is usually different from the “end date”.
   Select a Vendor under the “Pay To” section.  For Canada, it is the CRA; for USA, it is the IRS.  Also select a payment account this money will be coming out of (if you owe sales taxes) or going into (if the government owes you sales taxes).
   
4. You will see a list of all the sales taxes recorded by expense category with a data entry field beside each category that allows you to type in the percentage that is “deductable”.  For example, if you only drove your car 30% of the time, you would put 30% in this field and our accounting software will automatically calculate the deductible amout and the non-deductible (excluded) amount. In Canada, you can only deduct 50% of the Good and Services Tax - GST on meals and entertainment you paid.  Clarity Accounting provides a great way for you to keep track of these partial sales tax deductions and filing them quickly and accurately.
   
5. As you can see from the example above, you will need to remit $3218.73 to the government.
   If you are not ready to record this into Clarity Accounting at this time, don’t press the “File Sales Tax” button.  You can use this amount to remit the sales taxes to the government and record the transaction when you actually pay the government or receive a payment from the government.
6. Once you have remitted the sales taxes (either paid the government or received a payment from the government), you can repeat steps 1 to 6 and click the “File Sales Tax” button to record this into Clarity Accounting.
7. Once the “File Sales Tax” button has been pressed, you will see an “Edit” link that will allow you to see a summary of the transaction.
   
   
8. The “GST Expense” is the non-deductible amount (excluded amount) that has been allocated to an expense account for you to track as a business related expense.
   Under the “Payment” section, you will see how much you have remitted to the government.  A positive number means you owe the government money.  A negative number means the government owes you money.

Running a business is not easy, especially with the added pain of trying to do your own bookkeeping and tax filing.  We sincerely hope our accounting software will be able to save you valuable time from trying to track and file your sales taxes on paper or with an excel spreadsheet. You can try Clarity Accounting for free and see how easy bookkeeping can be.

You can also collaborate with your accountant and bookkeeper by sharing secure access to Clarity Accounting with them.  For instructions on how to add multiple users to collaborate on your business file, please refer to our help file Adding Multiple Users to Your Business.