How is sales tax tracked?
When you create a sales tax, Wave automatically creates a sales tax liability account on your chart of accounts, named after the sales tax. Every time you create a transaction that includes sales tax, the amount of tax is recorded to the sales tax liability account.
If you need to set up multiple sales taxes, be sure to give each sales tax a name that you'll recognize easily.
You can add sales tax to the following:
- Income transactions
- Expense transactions
How is sales tax calculated?
There are two types of sales tax calculations in Wave: exclusive of tax, and inclusive of tax.
- Exclusive of tax: this means the sales tax is calculated based on the price (the "base amount"), and then the sales tax is added to the base amount to arrive at the transaction total. Examples of this in Wave include invoices and bills.
- Inclusive of tax: this means the sales tax is included in the total of the transaction (or the individual item). The pre-tax amount is calculated based on the total amount and the sales tax rate. Examples of this in Wave include income and expense transactions.
View your sales tax transactions
There are two ways to see the sales tax transactions for your business: the Sales Tax report, and the Account Transactions report.
The Sales Tax report is a summary of all sales tax transactions, listed by individual sales tax, and organized by tax collected, tax paid, and payments or refunds to and from the government. Learn more about the Sales tax report.
The Account Transactions report - which you can link to from the Sales Tax report - shows the beginning balance of the sales tax account, all of the activity in the account, and the ending balance of the account. The transactions are totalled by debits and credits, which won't necessarily equal total tax collected and paid on the Sales Tax report.