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Create or delete a sales tax adjustment in QuickBooks Online

by Intuit•473• Updated 1 week 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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Here are a few reasons you might make a sales tax adjustment:

  • Credit: a credit received from the agency.
  • Prepayment: an additional payment for a future return in the current filing period. 
  • Prior prepayment: a prepayment that was made previously. 
  • Penalty: amount due to the agency for late payment or non-compliance.
  • Rounding: small differences due to rounding calculations.

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.

You can use negative values for sales tax adjustments. For example, if you need to have a single account for rounding differences.

You can add negative values to all adjustment types. The table below shows the impact of using positive and negative values for the account type selected.

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 All apps A bunch of numbers and letters on a tile wall., then Accounting, then 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. Select Sales tax (Take me there).
  2. Select the tax agency, then the return period you wish to adjust. Then select View summary.
  3. Select Add adjustment to books.
  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 Save.

Filing your sales tax with QuickBooks?

You can file your sales tax with QuickBooks if you’re subscribed to Sales Tax Essentials and you are in certain states. Sales Tax Essentials is an add-on that'll eventually be available in all states. Once subscribed, you can review the return prepared for you, and file and pay with QuickBooks.

To change the amount you pay to the agency, add an adjustment to your return.

  1. Go to Sales tax, find the agency and tax period marked ‘Due’, and select File return.
  2. In the Adjustments section, expand the accordion and select Add adjustment.
  3. Select the reason for the adjustment from the Reason ▼ dropdown menu.
  4. Add an adjustment date.
  5. 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.
  6. Enter the adjustment amount.
  7. Select Save.

This updates the amount you pay to the agency and your books. If you want to adjust the total tax due for the period without changing the amount you pay to the agency, add the adjustment to the View summary page.

Note: Discount and Use tax have their own sections in the return. Use those fields instead of adding them as an adjustment.

If you don’t file with QuickBooks, you can add any adjustments to the summary page before recording your payment.

Delete a sales tax adjustment

You can also remove an incorrect sales tax adjustment. After deleting the adjustment, you’ll no longer see it when you review your sales tax summary on the Sales taxes page.

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

If you’re filing sales tax with QuickBooks and the adjustment was included in your return, any changes must be made within the return. Select View in return to find the adjustment.

  • If the return has not been submitted yet, you can delete the adjustment by selecting the delete icon. 
  • If the return has already been filed, deleting the adjustment will cause your books to not match the agency’s records. If you want to correct the sales tax amount, you can add an adjustment to your next return.
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