How to handle sales tax returns and refunds from your government

Attention: This FAQ does not apply to all businesses. Please consult a tax professional to learn more about what your business can claim and about which sales taxes are recoverable taxes.

Depending on the tax process where your business is located, you may be required to pay sales taxes to your government and are possibly eligible for a refund in the future. This process is called remitting sales taxes.

As you enter data into your Wave account, we provide the option to attach a Sales Tax to your transactions, invoices, bills, and receipts. See further detail around these steps here.

Once the year comes to an end, most businesses are required to pay taxes or are able to recover some of the taxes paid throughout the year from their governing body. Once that payment or deposit comes into your bank account, there are some steps to take within your Wave.

In most cases, you need to record your Sales Tax payments and reimbursements on one Journal Entry. This happens when you receive a net owing amount from the government.

For example, let’s say that you owed $500 in taxes to the government for collected income. The government, in turn, owed you $600 in taxes for paid expenses. You then receive a check for $100 for your Income Tax Return.

Here are the steps we will want to take in your Wave account:

  1. Head over to the Accounting section in your left-hand menu
  2. Click Journal Transactions
  3. Select “Add a Transaction”
  4. Debit Sales Tax Payable for $500, Credit Sales Tax Receivable $600, and Debit Payment Account $100

Here’s how that will look like:

Here are the steps we will want to take in your Wave account:

  1. Head over to the Accounting section in your left-hand menu
  2. Select on Transactions
  3. Click on the More button
  4. Choose Add Journal Transaction
  5. Credit Sales Tax Liability (will show up as your tax description under the liabilities section) for $100 and Debit Payment Account $100

Here’s what that will look like:

If your business owed tax payments after your remittance, follow the same steps outlined above, and edit the Journal Transaction. Let’s use the same example as above, but in this case, we are going to owe $100 to the government instead of them owing us funds.

Debit Sales Tax Payable for $600, Credit Sales Tax Receivable for $500, and Credit Payment Account $100.

Debit Sales Tax Liability (will show up as your tax description under the liabilities section) for $100 and Credit Payment Account $100

If you have your bank account connected to Wave, the last and final step is to delete any transaction for this tax remittance from your Transactions page that was pulled through this automatic connection. Since we have already accounted for this entry with the Journal Transaction, this will ensure that there is no duplication.