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Join nowI posted this in another thread, but everyone thought I was asking how to show retainers in QBO, then wipe them out with invoice once the service is complete.
I understand how to do this 100%. That is not my question today.
My issue is with how the tax center in QBO shows the retainer as gross sales. Please read my scenarios below. I tried very hard to be very very detailed in my issue.
1. Let's use a typical scenario where I make a sale of $500 in Q1. There will be 8% tax so the total invoice will be $540. Since this is a typical invoice for a sale, the $500 will show up on My P&L and the sales tax center in QBO will show the following below.
Gross Sales: $500
Taxable Sales: $500
Tax Due: $40
2. In this scenario, I collect a prepayment of $540 in Q1. The work for $500 plus tax will not be provide until Q2. My state will not require me to pay the tax until Q2 as well since that is when the service will be provided. I created a customer liability account for the prepayment, and service item as well that connects to that liability chart of accounts.
2a. I create an invoice in Q1 for $540 with the customer prepayment as the line item. My P&L does not show any revenue, but my balance sheet does show the $540 as the liability. This all seems like it worked correctly except the sales tax center in QBO shows the following below.
Gross Sales: $540
Taxable Sales: $0
Tax Due: $0
Even though the taxable sale is $0, the $540 should not show up as gross sales either since it is a liability, not a revenue item
2b. Now it is Q2 and I provide the service. I create an invoice in Q2 for $500 as a taxable income service item. The invoice will show $540 with tax, but I then add a second line item with the customer prepayment code as a negative $540. The invoice now nets to $0. My P&L for Q2 now shows $500 revenue. The balance sheet for Q2 now show $0 for that liability account since I just reversed it out on the Q2 invoice. Once again, this all seems like it worked correctly except the sales tax center in QBO shows the following below.
Gross Sales: -$40
Taxable Sales: $500
Tax Due: $40
It took the $500 taxable line item and subtracted the $540 liability item to show a negative $40 gross. The taxable amount is correct at $500, but it's odd to show a negative $40 as gross sales.
Summary
When you look at the year as a whole the total gross sales come out to $500 ($540 from Q1 minus the negative $40 from Q2), and the total taxable for the year is also $500. It fixes it self at the end of the year, but it show up incorrect per quarter.
Below is what should show up in the QBO tax center, and this is how I need to report it to the state. How do I get QBO to show it correctly per quarter? Is this a glitch in QBO?
Q1 tax center should show:
Gross Sales: $0
Taxable Sales: $0
Tax Due: $0
Q2 tax center should show:
Gross Sales: $500
Taxable Sales: $500
Tax Due: $40
It seems that an invoice or credit memo will always show as a gross sales in the tax center even if the line item on the invoice is a liability item, and not an income item.
Should I send a retainer invoice to the customer from a third party program instead of through QBO. Instead of applying a deposit to a QBO invoice , I would just apply the deposit (from the cash received as a retainer from the customer) straight to the liability account? I could do this instead of what I show in step 2a
The only invoice I would create it when the service are rendered just like in step 2b.
Would this keep the QBO tax center from showing income from the retainer?
Hi there, @hello32
It looks like this is a duplicate post. Let me link you to the original thread where answered by my colleague.
For additional reference, you can check these articles below:
If you have any questions, please let us know. We'll be right here to help with anything you need. Have a great day!
I create this post.
This topic has not been answered yet. It seems like the answer I receive from the QBO team are just about how to set this up and create the transactions.
I have already stated that I have done this correctly. The issue is not with my steps taken. It is with the QBO tax center.
I really need someone out there to read my post carefully, and I would really appreciate some guidance to the issue I am having
It seems like this is a duplicate post, hello32.
I've added this link as to where my colleague Mary Land, answered your concern: https://quickbooks.intuit.com/learn-support/en-us/account-management/re-why-does-the-customer-prepay....
Feel free to get back to me if there's anything that I can help. Stay safe!
Unfortunately this issue is still not resolved. No one has yet to quite understand the problem here. I can create my own work around by not having an invoice at all and just showing the cash deposit as a liability so it does not show up in the tax center.
At this point I’ll just assume this is a glitch in the program
Helping you is our top priority, @hello32. And I personally want to get this fixed for you.
As mentioned by my colleague MaryLandT from the other thread, it may affect the accounting method from the Sales Tax Center that's why the cash deposits aren't showing there. The Cash basis will not reflect the deposit/retainer as received until the invoice is paid in full.
You can read through this article to learn how Cash and Accrual accounting affect sales tax.
If the same thing happens after changing the accounting method, I'd suggest contacting our Phone Support Team. This way, they can further investigate the Sales Tax Center and create an investigation ticket if other users are experiencing the same.
To reach them, click the ? Help button and select Contact Us to contact a live agent.
Also, I'm adding this article to know more about how to manage sales tax payments in QuickBooks: Manage sales tax payments in QuickBooks Online.
Please let me know if you need clarification about this, or there's anything else I can do for you. I'll be standing by for your response. Have a great day.
Thanks for your reply. I am on accrual basis. I understand what you are saying. It's not quite the issue here.
It's fine. I will report taxes manually instead of through QBO tax center. It's a problem with the tax center counting a liability account as gross sales only because I put it on an invoice.
I will just have to figure out some other way to resolve this. I am pretty sure this is a QBO issue not an entry issue.
I will reach out to an expert like everyone has suggested
Thanks for trying.
Hello. I am running into the same issue with sales tax. I am wondering whether you found a resolution in QBO for this? Thanks.
Almost 3 years since your question, but I've found an answer that works (at least for me).
My conjecture was that using an invoice was causing QBO to classify the transaction under "Sales". So the first step was to use journal entries -- first between A/P and a liability account "Customer Advance Payments"; then, when the customer pays, between A/P and a bank account. Unfortunately, this still resulted in the advance payment showing up in "Sales".
So then I looked at the journal entries to see if anything could be causing them to be considered "Sales". Sure enough, I had put "Exempt (Sales)" in the Sales Tax field. When I deleted this (the "Sales Tax" field is now empty) and hit "Save", the transaction magically disappeared from "Sales".
When you use a Sales Invoice in QBO, the Sales Tax field cannot be left blank. So using journal entries is the only workaround for this bug in the software.
I have had this same problem. Is there any engineer that's working on this issue?
Hi there, @lseibel.
I can see how this can be challenging for your business. As of now, we don’t receive a similar issue about the incorrect posting of tax centers to the accounts in QuickBooks Online (QBO). Before anything else, you’ll want to ensure you’ve chosen the correct posting account for the following liability transaction.
If none of the solutions outlined by my colleagues above works for you. It would be best to contact our Technical Support Team. This way, they can double-check your account to verify while maintaining your privacy and initiate a further investigation if necessary.
Feel free to post back if you need further assistance with QuickBooks-related concerns. Stay safe!
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