Using the option of "Inclusive of Tax" or "Exclusive of Tax" is indicating to QBO how to deal with the value you are entering into the Amount field. If you want the system to calculate and capture the tax based on the total amount you would use Inclusive of Tax. If you want to enter the value before tax then you would use Exclusive of Tax.
For example: you want to enter a Bill of $135.00 (this is the total amount and includes 13% HST)
Your entry using "Inclusive of Tax" will be 135.00 in the Amount field. Then you select the HST tax option (drop down menu). Your Amount will be 135.00 in the field and on the right-hand side you will see SUBTOTAL of 135.00 and below that you will see the breakdown of the tax: "Includes HST (ON @ 13% on 119.47)".
Your entry using "Exclusive of Tax" will be to enter 119.47 in the Amount field and HST chosen for the tax rate. Your SUBTOTAL will be 119.47, then the line with the tax amount and the Total will be 135.00.
In both cases you will have a subtotal of 119.47 being captured against the Category and the HST captured against the Tax and your TOTAL will be 135.00 It's really a matter of preference I think.
