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Create or delete a sales tax adjustment in QuickBooks Online

by Intuit•30• Updated 2 weeks ago

Learn how to adjust your sales tax due if you use automated sales tax in QuickBooks Online.

With automated sales tax, it’s easy to keep your sales tax records accurate. If you received a tax credit, discount, or fine, you can adjust the sales tax you owe. This way you don’t have to worry about making corrections when it’s time to file.

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There are a few reasons you might make a sales tax adjustment:

  • Credit / Discount: a credit/discount received from the agency.
  • Prepayment: an additional payment for a future return in the current filing period. 
  • Prior prepayment: a prepayment which was made previously. 
  • Other: penalties, interest, or rounding errors.

When you create a sales tax adjustment, the amount payable will either increase or decrease depending on the account type you select. Please consult your accountant or tax professional if you’re unsure of the correct adjustment account for your situation. 

The following table shows the results of choosing different account types:

Account selectedEffect on sales tax returnJournal entry of sales tax adjustmentEffect on your reports
Income/Other incomeSales Tax payable goes downDebit: Sales tax liability account 
Credit: Income account		Profit/Loss: Your chosen income account increases.
Balance Sheet: The amount payable to the tax agency decreases.
Expense/Other expensesSales Tax payable goes upDebit: Expense account
Credit: Sales tax liability account 		Profit/Loss: My chosen expense account increases.
Balance Sheet: The amount payable to the tax agency increases.
AssetSales Tax payable goes downDebit: Sales tax liability account 
Credit: Asset account		Profit/Loss: No effect
Balance Sheet: The amount payable to the tax agency decreases and your chosen asset account balance decreases.
LiabilitySales Tax payable goes downDebit: Liability account
Credit: Sales tax liability account		Profit/Loss: No effect
Balance Sheet: The amount payable to the tax agency increases and your chosen liability account balance increases.

When you enter a sales tax adjustment, you’re creating a double entry transaction. One side of the transaction will always be your sales tax liability account. You only need to select the other side of that transaction on the adjustment form. You’ll never need to select the sales tax liability account as that would create a debit and a credit to the same account, which cancels itself out.

If you create an adjustment with the reason for deduction as Other (penalties, interest, rounding errors) 

You can use a negative value, which can be helpful to those who wish to have a single account for rounding differences. The effect of using negative values is as follows:

Account type selectedPositive/negative valueDebitCreditEffect on sales tax return
IncomePositiveSales tax liability accountIncome accountDecreases sales tax due
ExpensePositiveExpense accountSales tax liability accountIncreases sales tax due
IncomeNegativeIncome accountSales tax liability accountIncreases sales tax due
ExpenseNegativeSales tax liability accountExpense accountDecreases sales tax due

Here’s how to add or delete a sales tax adjustment in QuickBooks Online.

Note: If you need help entering your sales tax adjustment, please consult your accountant or tax advisor.

Add a sales tax adjustment

Step 1: Set up an account for sales tax adjustment

It’s important to use the correct account type when adjusting sales tax. Set up an expense or liability account if you need to increase your sales tax due. Or setup an income or asset account if you need to decrease your sales tax due.

Note: To add a new account, switch to Accountant View. If you already have these accounts, move on to creating the adjustment in Step 2.

  1. Go to Settings ⚙️ and select Chart of accounts (Take me there).
  2. Select New.
  3. From the Account Type ▼ dropdown, select Income or Expenses.
    • If you need to decrease your sales tax due, set up an income or asset account.
    • If you need to increase your sales tax due, set up an expense or liability account.
  4. Select the account’s Detail Type.
    • Use Sales of Product Income for an income account.
    • Use Taxes Paid for an expense account.
  5. Name your adjustment account (for example, sales tax due increase).
  6. Select Save and Close.

Step 2: Add an adjustment

  1. Go to Taxes, then select Sales tax (Take me there).
  2. Select the tax agency, then the return period you wish to adjust. Then select Review sales tax.
  3. Select Add an adjustment or prepayment.
  4. Select the reason for the adjustment from the Reason ▼ dropdown menu.
  5. Add an adjustment date.
  6. Select the account for adjusting sales tax from the Account ▼ dropdown menu.
    • Choose an expense account if you need to increase the tax due.
    • Choose an income account if you need to decrease the tax due.
  7. Enter the adjustment amount.
  8. Select Add.

Delete a sales tax adjustment

You can also remove an incorrect sales tax due adjustment. After deleting the adjustment, you’ll no longer see it when you review your sales tax return on the Taxes screen.

  1. Go to Taxes, then select Sales tax (Take me there).
  2. Select the tax agency, then the return period which has been adjusted. Then select Review sales tax.
  3. Find the adjustment and select the adjustment amount.
  4. Select Delete.
  5. Select Delete again to confirm.
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