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Is this Income ??

We have a small company which does business in numerous states in which we charge the customer sales tax and then pay it monthly, quarterly etc. to the particular state and the sale tax we receive is put in the sales tax liability account..

Some states offer a small discount if we remit the sales tax on time

- in which case we can subtract it from the tax paid or occasionally, the state will send us a small check.

Currently this discount is being counted as Income which I do not believe is correct and instead should be credited against that their A/ P account. Can anyone confirm I am not going crazy?

On a separate manner - I have been hearing that some companies are no longer capitalizing expensive software or expensing cheaper software , for let's say under $100. and putting it in a separate expense account. They are putting all software purchases into an expenses account for "Licenses" (oddly enough, one company puts their software as well as their expenses paid for their annual sales tax licenses in the states where they do business) - on the theory you don't really don't own the software - you just have a license.

I can see a few possible exceptions - annual renewal subscriptions, for let's say Anti- Virus software, etc. - but once you buy the software - It's yours to use for as many years as it is helpful regardless if technically the software companies say they only give you a license. Has anyone heard of this? Sounds a bit off base to me..

Your opionions and guidance would be greatly appreciated..

Thank you..

Rick

Reply to
Nightcheck
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I only have 1 client that charges sales tax and is allowed the credit/refund for timely filing. Their CPA put it as an expense account on the COA to receive the credits. That is one way to do it. I personally believe since you are receiving money that it is income. Credits to the expense account for something that is not an expense just does not make sense to me. Your entry woold be: Debit Sales tax Payable/Credit Income (or expense).

Impact on the P&L is the same-they are credits so I'm not sure if it makes a difference where you put it unless your state has tax impacts based on total income instead of profits.

Interesting question that is probably best answered by your accountant.

I have been told by several CPAs that you would better off depreciating everything by electing the Section 179 deduction. The end result is the same as expensing the purchases.

Take a look at Publication 946:

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Off-the-shelf computer software. Off-the-shelf computer software placed in service during the tax year is qualifying property for purposes of the section 179 deduction. This is computer software that is readily available for purchase by the general public, is subject to a nonexclusive license, and has not been substantially modified. It includes any program designed to cause a computer to perform a desired function. However, a database or similar item is not considered computer software unless it is in the public domain and is incidental to the operation of otherwise qualifying software.

Reply to
Laura

I don't think so. A sales tax is a tax on a business. Discounts, early-bird specials, and the like simply reduce the tax. Forget about the Gross/Discount business and enter the amount you pay.

In my view, you have a choice whether to expense or amortize these things. If you're having a bumper year, expense the items to reduce your tax burden. If you expect future years to be better, amortize.

As an aside, there's no need to spend money for anti-virus software. There are numerous products available that do a better job, while using less resources, than the commercial leaders (Norton and McCaffee).

Reply to
HeyBub

How do you adjust your Sales Tax Payable account if you collected $1000 but you only owe $970 because you received a $30 credit from the state? You certainly don't want to leave that $30 on the account since it is no longer owed to the state. QB is going to nag you about owing the $30 so you really DO want to record that credit.

If you elect the 179 deduction you basically end up expensing it in the year purchased.

Very true. And practising safe computing also helps.

Reply to
Laura

I get rid of it by JE to commissions. I do see it as income as I am just a flow through channel. The amount I collect I must pass on. When I get to keep some of it, it is income in my books (pun intended).

Reply to
Arno Martens

Exactly. Sales Tax is a liability similar to payroll tax withholdings -- not an expense. Any early payment discount is income to the company. (that's my opinion anyway...)

Reply to
klunk

I class it as Income as Discounts Earned.

--Hal.

Reply to
HMcDuck

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