You may have to adjust your sales tax liability for GST/HST, PST, or QST, such as when a customer fails to pay an invoice or you need to get a refund of some of the remitted sales tax. These represent the Goods and Services Tax, Harmonized Sales Tax, Provincial Sales Tax, or Quebec Sales Tax as collected by the Canada Revenue Agency.
You can easily adjust the amounts for each tax in QuickBooks, which makes reporting any changes simpler when you file your sales tax returns.
Specific Examples of When You Need to Adjust Sales Tax Liabilities
One example of adjusting sales tax liability occurs if a customer’s cheque bounces. You can write off the invoice as a bad debt and adjust the sales tax amount on the transaction form if the cheque covers just one invoice. Writing off the bad debt as an expense lowers the amount of sales tax you owe.
Also, if you need to pay a penalty, fine, or a higher sales tax liability, you need to adjust your liability to a higher amount.
How to Adjust Sales Tax Liability in QuickBooks Online
You can adjust the sales tax liability in QuickBooks Online by following these steps:
- In QuickBooks, select Taxes on the left menu and then Sales Tax at the top. Make sure you don’t accidentally select Payroll Tax if you pay taxes for your hires.
- Next to Sales Tax, choose the tax agency associated with the return. This happens through a drop-down menu.
- Select the Returns tab, look for the line item for the sales tax you want to adjust, and choose Prepare Return from the Action column.
- Look for the sales tax line you want to change, and select Adjust.
- Choose an Adjustment Date and Tax Rate.
- Select an account from the Adjustment Account drop-down menu. Choose an income account if you owe less sales tax because someone failed to pay. Go with an expense account, such as Interest Expense or Non-deductible Penalties when owe the CRA more money in taxes.
- Enter the adjustment amount in the Amount section.
- You can enter a short description of the adjustment in the Memo field if you want.
- Click the Save button to save the adjustment to your records.