As a recent convertee from Money, can anyone tell me how they account for sales tax paid on normal purchases? I'm not referring to tracking sales tax charged customers, just tax paid on simple household items for example.
Money had a feature that automatically distributed sales tax amongst the purchases split on a specific entry. I can't find any information on this. Do I need to compute the proportionate amount for each line item, or do most users simply lump the sales tax paid into a separate category.
AFIK Quicken does not have an automatic distribution mechanism such as you describe for Money.
What I do is enter the amount for an item in the split window, then multiple it by 1.06 (our sales tax is 6%). When I hit enter, Quicken rounds the total appropriately.
Not as quick/easy as automatic distribution, but works pretty well.
Hi L9 - I am just curious why you want to do this? Are you in some state that gives some sort of tax treatment to sales tax? As I said, more curious than anything else as to why someone would want to do this....(perhaps to allocate specific tax amounts for reimbursement on large purchases??)
For me, I just have a subcatagory that I entered the tax information into. I am just curious on how much Sales Tax I really do pay a year - eventhough I know that my itemized deductions would be larger.
IRS announced that you can deduct state and local sales tax rather than state and local income tax if you wish. You can use either the estimated sales tax using IRS tables or the actual sales tax from receipts (reference: IRS Instructions for Schedule A). That could be one reason for tracking sales taxes in Quicken.
Ah yes! I should have remembered that. Especially for those in states that don't currently have a State Income Tax, this is indeed important. Thanks Tim.
Tennessee, where I live, TECHNICALLY has an income tax ... it just doesn't tax EARNED income (the tax is paid on investment dividends and interest from out of state sources).
So it's benecifial for me to track sales tax paid (even when I'm traveling to another state), since my actual sales tax paid is quite a bit higher than the IRS sales tax tables.
BTW, the downside of not having an income tax is that our sales tax, which varies by county, ranges from 9.25% to 9.75% on EVERYTHING, including services and groceries.
Yep - a form of 'consumption' tax that many (I won't get into the politics on this!) feel is fairer than Income taxes, but other's don't - regressive taxation and all that. I think it depends how much of a percentage of one's income one needs to spend for 'necessities' that determines where one stands on the issue.
Oh well, the government needs to make their money one way or the other. TANSTAAFSL!
Hi, Andrew - Of course, consumption taxes get your friendly local drug dealers, mob bosses, etc., etc., that don't bother to pay income taxes like the rest of us! CTinFL
In CA, I pay both a Income Tax and an 8.25% sales (which varies statewide). I would love a 9.25% sales tax on everything and drop the Income Tax. LOL, I won't enter the debate either.
When I lived in CA (1981-1993) they didn't apply the sales tax to groceries or services ... only to goods.
So if I took my car to the mechanic, say for an oil change, I only paid sales tax on the oil (and any other actual goods) NOT on the labor. Is that still the case?
I don't. That is, I don't separately account for the sales tax. I have both theoretical and practical reasons.
In accounting theory, the cost of any item includes all amounts that must be paid to get the item in our possession and ready to use. Sales tax on a new business machine is a part of the cost of the machine; it will be deducted over years as an indistinguishable part of the annual deduction for depreciation of that machine. Sales tax on ink for the business printer is just more Office Expense, not Taxes Expense. The total sales tax paid for the year might be an interesting number, but it does not show up on the income statement.
As a practical matter, it simply is not worth the effort to track all the pennies - and even dollars - in the thousands of transactions during a year. It MIGHT have made sense 40 years ago, before the IRS began producing charts that taxpayers can use to determine an acceptable estimate to put on their returns. When the tables first became available long ago, our firm evaluated them and found them reasonable - even generous - for most of our clients. These tables are built into TurboTax (and other tax programs) so the taxpayer doesn't even have to go to the trouble to look it up anymore. TurboTax compares the sales tax number from the chart with the state income tax number for the taxpayer and automatically chooses the larger (unless the taxpayer overrides it).
We are allowed to add extra sales taxes paid that fall outside the chart's assumption of a typical taxpayer's expenditures based on income, family size, location, etc. We can add the tax on our new car to the amount from the chart, so I would keep track of that. But I would do that by showing it in a Split transaction as separate part of the cost of the car, not by putting it into a Sales Tax Category. Since there are not likely to be more than a half-dozen such "extra" sales tax numbers during a year, it shouldn't be hard to go back and find the easily-remembered transactions involved.
But you said "on normal purchases", so my answer stands: Don't bother. Use the chart.
I guess I wasn't too clear in my OP, but the resultant feedback is enlightening. I was simply trying to discover if Quicken had a feature that would automatically distribute the sales tax paid evenly across all purchases made on a specific receipt, noting that often enough, multiple categories of purchases are made on the same receipt. My comparison was made to MS Money, which does include a feature that accomplishes this with ease. The first reply confirmed what I suspected and was doing, that you must calculate the sales tax on each split entry by using a simple multiple that coincides with ones local sales tax (although it isn't always that simple since my state has different sales tax categories). But I never worried about the pennies lost or gained if this was the case, and simply applied a proportionate amount of tax evenly across all purchases on a given receipt.
I always understood that the sales tax paid on goods is part of the total price of those goods. And that is the way I plan to keep it.
Thanks to all.
John
FYI: I can top CA here in New Orleans, though I'm certainly not boasting... the sales tax here is a ludicrous 9% on top of the already criminal state income tax... and it's quite possible, for obvious reasons post Katrina, it will only get worse. Perhaps it's time to move... utility bill proposed increase of 140% by bankrupt Entergy New Orleans for New Orleans proper is enough to nail that lid shut for many.
R.C, With all due (and considerable) respect, I must disagree with you on this matter..
All of the examples in the previous paragraph (before reducing for length) refer to BUSINESS purchases. And, indeed, I record the sales tax on business purchases (my wife and I are both self-employed) to the same category as the item. In fact, the instructions for deducting sales tax on 1040/A specifically state that business sales tax is excluded.
In 2005, we did not make ANY "big ticket" purchases that can be separately included over and above the IRS sales tax table for Tennessee ... yet my ACTUAL sales tax paid on PERSONAL expenses was
40.9% higher than the amount allowable on the IRS "Line 5-b Sales tax calculations".
Unless one calculates the actual, personal, sales tax paid, how can you possibly determine which method (state income tax, IRS sales tax table, actual sales tax paid) is optimal? And it's a WHOLE lot easier to record the sales tax when first recording the transaction in Quicken than it is to go back and edit each transaction for the entire year.
It's well worth it to me to split each "personal" transaction and record the sales tax expense to it's own Quicken category ... and (to answer the OP) I wouldn't WANT Quicken to allocate the tax to the underlying purchase. If Money does that automatically, I would certainly hope that there's a method of turning that feature off, since being forced to use the IRS tables would have cost me Money.
Thanks for including this information; 2005 is the first year that such an item might be of value to me, and I had been trying to track all my sales taxes so I would be sure to be able to claim the tax on the car.
Still, I wouldn't mind a feature that allowed me to tag a split line as taxable and have a pre-set tax percentage applied to it; some purchases are broken out into 5 or 6 categories ... not all which are taxable.
The feature in Money was entirely optional, provided at the final step of a transaction before entering it into the register. My use of the term "automatic" referred to the fact that it proportionately calculated the sales tax of each split line item. I.E.: After entering your split categories using your receipt as a reference, the difference remaining is the amount of sales tax paid. Money asks what you want to do with it and provides a few options.
I'd like to ask you if you lump all your "personal" sales taxes paid into one category, or do you have subcategories of the sales tax set up as well? Perhaps I should rethink how I plan to account for this sales tax in Quicken.
I have to distinguish between sales tax paid on business purchases (my wife and I are both self-employed) and sales tax paid on personal purchases.
On business purchases, the sales tax is recorded as part of the purchase. I.E., if I buy $25 of office supplies, there will be a sales tax amount of $2.31 (9.25%). I record the entire amount ($27.31) as Self-Emp:Office Supplies. Thus, the entire amount reduces self-employment income and self-emp -- AKA, FICA -- taxes owed.
On personal purchases, I only use a single tax category Taxes:Sales Tax. The only reason that I can see for sub-categories to Sales Tax is if you think you'd need to differentiate sales tax on groceries from sales tax on restaurant from sales tax on pizza delivery (or a similar scheme). If you're really interested, for example, on how much you spent AT the grocery, just run a transaction report and select the particular grocer. You can see the proportional dollar paid to each by subdividing your FOOD category. Granted, this won't show the total amount paid to your grocery ... but neither will subdividing the sales tax category
Lastly, there's only ONE line that I'm aware of on the 1040/Schedule A where sales tax paid is recorded ... that's line 5, State & Local Taxes paid. Any further subdivision of the sales tax line would strictly be for your own info.
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