Learn How to Set Up And Use Tax in QuickBooks Online

If your primary business management software is QuickBooks Online, properly setting it up for tax purposes is essential for accurate calculations and compliance. Proper tax setup ensures you apply the right tax rates, track taxable and non-taxable customers, and record liabilities without manual errors. QuickBooks Online offers built-in tools to automate tax calculations, manage sales tax, and generate reliable reports. In this guide, we’ll walk you through how to set up and use tax in QuickBooks Online so you can stay organized, compliant, and confident during tax time.

Step-by-Step Guide to Using Tax Features in QuickBooks Online

In this section, you will learn how you can set up and use tax in QuickBooks Online, tax calculation, and how you can record your taxes within the software, and more. 

Learn how to calculate tax

The total tax rate for each sale varies depending on various factors, such as:

• The customer’s tax-exempt status.
• Where you sell or where you ship.
• Your service or product’s tax category.

Tell QuickBooks where you collect tax

QuickBooks usually keeps a track of taxes on all of your transactions to ensure that taxes and tax returns are calculated accurately. 

If you just started with QuickBooks, you must set up where you charge tax for the first time. Learn how to set up the tax with the steps below: 

Follow this link to complete the steps in the product.

• Choose Set up tax.
• Enter the Tax name and then the Description. 
• Depending on the Tax name you have entered, the tax agency name will get populated automatically. QuickBooks lets you change the name if required. 
• Enter the Business ID No. (optional).
• Now, choose Start of current tax period and Filing frequency under the respective drop-downs.
• Choose the Reporting method. How would you report the taxes? Generally, it will be Accrual, but for any doubts, consult your accountant. 
• Enter the Sales rate. (Optional) 
• If you have collected the tax on this purchase, mark the checkbox and enter a Purchase rate (optional). Then, mark the checkbox if your Purchase tax is reclaimable.
• Select Next and then click OK. 

When the tax centre is done, you can also add custom tax rates.

Add tax categories to your products and services

As a business owner, assigning a tax category is crucial. Assign tax categories to anything you sell to update QuickBooks on how much and on which product tax must be calculated.

Follow this link to complete the steps in the product.

• Find the items you are assigning a tax category to. 
• Click Edit.
  Note: If you want to assign a tax category to a new product or service, here’s how to add a new inventory item.
• Go to the Tax drop-down menu. 
• Now, look for the specific tax that best matches the item. 
• Complete the required information for the item. The steps vary for an inventory and a non-inventory item; visit Intuit for detailed steps.
• Finally, save your item. 

Double-check your customers’ info

You can also modify the tax rates if you ship products or offer delivery services to your customers’ addresses. These changes also help QuickBooks avoid applying taxes to entities such as churches, schools, or other non-profit organizations, as they are not required to pay tax.

Make sure you have accurate information for your customer’s tax status, billing address, and shipping address. To ensure this, double-check the customer’s details in QuickBooks.

• Choose New Customer. 
• Enter your customer’s display name in the Customer display name field (required).
• Now, review each section and enter any of the required customer information.
• You may optionally designate customers who belong to a group or larger organization as sub-customers under an existing “parent” customer. There is no limit to the number of sub-customers, but the hierarchy can extend only up to four levels beneath a parent account.
• Mark the checkbox labeled “Is a sub-customer.” This action will display a parent customer dropdown menu. 
• Under the Parent customer dropdown, choose your parent account. 
• Finally, click Save. 

Track tax from your customers

Once you’re done with the setup, you can start using the tax feature. QuickBooks will show you how the feature works and where you will use it when creating an invoice or receipt for your customer.

• Follow the same steps as you do when creating an invoice or sales receipt.
• Ensure the Location of sale is accurate.
• If you offer shipping services with the ordered items, add the Shipping to, Ship via, Shipping date, Tracking no. info so QuickBooks knows where to charge your tax.
• Verify the taxable items under the Tax column. 

Note: If you haven’t done so yet, be sure to assign tax categories to your products and services so QuickBooks can determine which items are taxable.

• Finally, click Save and send.

Check how much you owe and why

Review a detailed breakdown of the taxes you owe and the reasons behind them. This allows you to verify that all information is correct before filing and paying your tax return.

Learn how to generate the Tax Liability Report to access your tax details at any time.

Follow this link to complete the steps in the product.

• Choose the Tax Liability report under the Type report name dropdown.
• Click on the Report period dropdown. Choose the date range accurately depending on how you are filing your taxes. 
• In case your report has opened in: 

Classic view: Now, make the following edits or customisation.

• Choose the Tax Agency dropdown. Then, choose All or just one tax agency.
• Click on Run report.
• Find the Tax Amount column. Here, you can get an overview of the total tax amounts you collected from your customers.

Modern view: Now, make the following customisation.

• Select Filter.
• Choose the Tax agency under the filter dropdown.
• Select equals from the options dropdown.
• Choose the name of your tax agency under the Value dropdown. 
• View the Category/Product/Service tax amount column. Now, review the total tax amount that you have collected from customers. This total tax amount includes totals for state rate and local tax rates (such as city, county, and/or district).

• Select any tax amount to get a detailed overview of what you owe. Now, a transaction report will open that shows how much tax you charged in each sale, and will also display other information such as customers, transaction dates, and tax rate. 

File your tax return

This is the final step to ensure your taxes are set up correctly and that you are ready to file your tax return.

QuickBooks keeps track of your payment due dates in one place to help you avoid late returns and penalties. Once all is set, it’s time to file. Make sure to review everything to ensure it is accurate. After filing the taxes, track your new tax payment in QuickBooks to keep your records up to date.

a. Review what you owe

Verify everything and ensure it’s accurate. 

Follow this link to complete the steps in the product.

• See which tax return is due this month. 
• Choose Prepare return. 
• Under the Filling period drop-down, choose the appropriate option. 
• Enter the dates in the End date and Filing date fields.
• For any required adjustments for things such as credits, discounts, or corrections, click on Adjust for the very same items in the list that you are adding as an adjustment. Enter all the adjustment details in the form and click Save. The adjusted value will be updated in your return. 
• Note down the total gross sales, taxable sales, tax due, and adjustment amount (if you added one). These numbers will be required later when filing the tax return form. 
• When you’re done updating the return details, choose Mark as filed.
• Finally, click Continue.

Note: If you need a more detailed breakdown of your balance, generate a Tax Liability report for the same tax period. This allows you to review taxable and non-taxable invoices, receipts, and other related transactions.

b. File your return with the right tax agency

After you review your tax return, you have two options to file your tax return: e-file your return on your tax agency’s website, or file by mail.

E-file your tax return

When you have reviewed your taxes, you will have two options to file your tax return: e-file your tax return on the tax agency’s website, or file via mail. 

• Visit your tax agency’s website to file the tax returns online.
• If you haven’t already, make sure to sign up for the state’s e-filing service.
• Fill out the tax return form and complete it. 
• Refer above for the gross sales, taxable sales, and tax due amounts noted in Step 1. 

Mail your tax return

Most states encourage businesses to e-file their taxes. If you can’t file your taxes online, check the tax agency’s official website for more details on how you can file your tax returns. 

Correct a tax return

QuickBooks Online doesn’t allow amended tax filings. To make corrections to a submitted return, you’ll need to reach out to your tax authority directly.

c. Record your tax payment in QuickBooks

Once done with filing your tax returns, record the tax payments in QuickBooks to zero out the tax payable. This will keep the tax information in QuickBooks up-to-date. 

• Look for the tax return you just filed and choose Record payment.
• Choose Payment under the Payment type. 
• Add the following payment details: 
  • Bank account
  • Payment date
  • Payment amount
  • Memo (optional)
• Finally, click Save.

To get your payment details, check under the Payments tab. 

Conclusion 

Accuracy and on-time tax filings are crucial to staying compliant and avoiding tax penalties. For this, your tax software must be set up correctly with accurate tax rates, products, and customer info. With the detailed guide to learn how to set up and use tax in QuickBooks Online. Hopefully, everything goes right.

For any challenges or further queries, we recommend that you consult QuickBooks Accountants or tax professionals promptly. Dial (866)500-0076 to talk to a QuickBookSupportNet professional now!

Frequently Asked Questions 

How to set up local taxes in QuickBooks Online?

Go to Settings > Taxes, then choose Sales tax and turn it on. Now, click Add tax or Set up sales tax, then choose your state, and then add your local tax agency. Enter the local tax rate with the right location and save your changes. Now, QuickBooks will automatically calculate your local taxes. 

How to set up automatic tax payments in QuickBooks Online?

To set the automatic tax payments in QBO, enable Payroll Settings for payroll taxes or switch to Automated Sales Tax for sales tax. Make sure to verify your info before setting up the taxes, and you’re all done. 

How to file a tax return in QuickBooks Online?

QuickBooks doesn’t support filing your taxes within the software. What you can do is review the tax amount you owe and the related info and then file your tax return with the right agency online on their official website. When done, you can record the tax payment in QuickBooks Online. 

How do you adjust taxes in QuickBooks Online?

To adjust taxes in QuickBooks Online (QBO), you typically use the Sales Tax Center to make adjustments for specific periods by preparing the return and using the “Adjust” link to add or reduce the amount, linking to a specific expense or income account. 

How to record tax payments in QuickBooks Online?

Look for the tax return you just filed > Record payment > Payment under Payment type. Now, add the following payment details, such as Bank account, Payment date, Memo, and finally click Save.