This article explains how sales tax works in Wave, and how to record sales tax activity.
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 transactions:
- 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.
So how do I handle sales taxes in Wave?
How to add sales tax to an invoice
How to add sales tax to a bill
How to add sales tax to an income or expense transaction
How to record a sales tax payment
If you are paying more than one tax, you can split the transaction and select each tax included in the payment.
How to record a sales tax refund
How to record a discount on sales tax owed
- Navigate to Accounting > Chart of Accounts, and click the "Add a New Account" button in the upper right corner. In the Account Type dropdown, scroll down to the Income section, and select Discounts. Name it “Sales tax discounts.”
- Next, head to Accounting > Transactions. Locate or create the payment transaction and open the transaction details. Click “Split this withdrawal.”
- On one of the line items, enter the full amount of the tax due according to the Sales Tax report. Categorize this amount to “Sales Tax Payment to Government” and choose the sales tax from the list.
- On the other line item, enter the amount of the discount. Categorize this to “Discounts and Fees,” and then choose the “Refund for…” the sales tax discount account you created in step 1.
Choosing the Discounts and Fees category will flip the sign to negative, so the transaction will balance.
- Click Save, and you’re done! The Sales Tax report shows that the tax is paid in full, and the correct payment amount is recorded in your bank account.
How to see your sales tax transactions
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.
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.