Lesson 48-- Taxes

Goldenseal small business accounting software includes special handling for four types of taxes:

Income Tax-- You can allocate expenses and income to different categories, so it's easy to use your Goldenseal data to fill out tax forms.
Payroll Tax-- Goldenseal automatically withholds payroll taxes from employees, and then pays withholding and employer taxes to tax agencies or insurance companies when they are due.
Sales Tax-- Goldenseal automatically charges sales tax on sales or project billing, and pays it automatically to sales tax agencies.
Vendor Withholding-- Goldenseal allows you to withhold backup withholding or other taxes from suppliers and subcontractors.

This lesson explains how to use Goldenseal for each type of tax.

Income Taxes-- Cash Basis

If you use cash accounting for tax purposes, the easiest way to classify your income and expenses is to use the Tax Class field, which is found in every bank transaction.

Goldenseal groups expenses into the five basic cost areas (equipment, labor, materials, subcontractors, other costs), plus a few other categories such as bank fees and interest paid. It groups income into project income, rentals and sales, plus a few minor categories such as bank interest.

To put expenses from a vendor into a different category, follow these steps:

Choose Material Suppliers, Subcontractors or Other Costs from the Accounts menu.
Find the account you'd like to change.
Enter a cost category into the Income Tax Class field.

To see a report of all financial transactions broken down by tax class, follow these steps:

Choose Taxes from the Reports menu, and choose Income Tax Report from the submenu.
Use the Date Range popup field to enter a date range.
Click the Update button.
If you'd like to get the report data into a spreadsheet, click the Save As Text button.

HINT: The Income Tax Report shows all bank transactions. You won't include bank transfers on the tax form, since they only shift funds and are neither income nor expense.

Income Taxes-- Accrual Basis

If you use accrual accounting for tax purposes, you can probably still use the Income Tax Report to prepare taxes. Start with the cash numbers, and then make any adjustments for accrual conditions.

For example, you may need to adjust the following expenses for the year in which they accrue:

Prepaid expenses such as insurance
Accounts payable in the last month of the fiscal year
Paychecks at the end of the fiscal year
Payroll taxes that you collect in one year and pay in another

You also may need to adjust the following income amounts for the year in which they accrue:

Projects that are partly-complete at the close of the fiscal year
Sales that have not yet been paid
Write-offs that you've taken via Payment Receipts that use a write-off as the payment method.

For a report of all expenses accrued during a time period, follow these steps:

Choose Expenses from the Reports menu, and choose All Expenses from the submenu.
Enter a date range.
Click the Update button.

For a report of sales income during a time period, follow these steps:

Choose Income from the Reports menu, and choose Sales from the submenu.
Enter a date range.
Click the Update button.

For a report of project accrued income during a time period, follow these steps:

Choose Projects from the Reports menu, and choose Project Bills from the submenu.
Enter a date range.
Click the Update button.

Payroll Taxes

When you use the Write Payroll command, Goldenseal automatically calculates tax withholding and employer taxes, and 'posts' each deduction and employer tax item to the account that receives payment for the tax.

NOTE: Before you write payroll, you'll need to assign each Tax Item to a tax agency so it will post properly (see page 357).

When tax payments come due, you can easily use the Pay Bills command to pay those taxes to each tax agency.

Payroll Tax Setup

Create a Other Cost account for each tax agency, and for any insurance agencies that collect payroll-based insurance.

To do so, follow these steps:

Choose Other Costs from the Accounts menu.
Click the New button.
Enter details for the account.

To assign taxes to a tax agency, follow these steps:

Choose Payroll Setup from the Costs menu, and choose Tax Items from the submenu.
Double-click on an item.
Enter the tax agency into the Pay To Account field.
Click OK.
Repeat steps 2 to 4 for each Tax Item.

Paying Payroll Taxes

To pay payroll taxes to a tax agency, follow these steps:

Choose Pay Bills from the Bank menu.
Click in the popup field at upper right, and choose Payroll Taxes as the item to pay.
You'll see a list of tax agencies, with the amount due to each. Click in the Pay column to mark the agencies that you want to pay now.
To see an itemized list of taxes due, double-click on the agency name.
You'll see an itemized list of every payroll item due to this agency.
Click in the Pay column to set the items to include items in this payment, then click OK to return to the main dialog.
To pay taxes, click the Create Checks button.
You'll be asked how to pay for these items. Enter a bank account, or leave the field blank if you plan to pay it later. Then click OK.

Payroll Tax Payments

When you use the Pay Bills command for tax payments, Goldenseal creates an Other Cost record for each tax payment. It uses a Payroll Tax breakdown to itemize every tax withholding item that is included in this payment.

HINT: When you create a tax payment, Goldenseal automatically 'posts' the payment of each individual withholding item, so they won't ever show up in the Pay Bills command again.

To view tax payments, follow these steps:

Choose Other Costs from the Costs menu.
Use the browser controls or the Find command to locate a specific payment.

To write a check to the tax agency, follow these steps:

Choose Pay Bills from the Bank menu.
Choose All Other Costs in the vendor popup field at upper right.
Put a check mark next to the tax agency (and any other items you'd like to pay now).
Click Write Checks.

You can also enter a single check to the tax agency, as follows:

Choose Checking Transactions from the Bank menu, and choose a bank account from the submenu.
Click the New button.
Enter Other Cost into the Pay To field, and the tax agency into the Account field.
Enter Other Cost into the Transaction Paid field.
Enter the tax payment transaction into the Reference field.

Payroll Tax Reports

After you've made a payroll tax payment, you can get a report of the tax payment in a form that is more useful for filling out tax forms.

To do so, follow these steps:

Choose Taxes from the Reports menu, and choose Tax Payment By Tax from the submenu.
Enter an Other Cost record into the Other Cost field.
Click the Update button.
You'll see a report listing each tax paid, with the amount paid for each employee.

To see a breakdown of the individual tax items paid for each employee, follow these steps:

Turn on the More Details checkbox.
Turn off the Condensed checkbox.
Click the Update button.

Sales Taxes

Sales Taxes cover Sales Taxes, Excise Taxes, GST and PST Taxes, VAT Taxes and any other taxes on sales or services that you collect from customers and pay to a tax agency.

NOTE-- Some GST and VAT taxes also include a credit for taxes that you pay to your vendors. You'll calculate that with a Vendor Withholding.

When you enter sales and project bills, Goldenseal automatically 'posts' the tax amount to the account for the agency that receives the sales tax. When tax payments are due, you can easily pay those taxes to each tax agency.

Goldenseal also includes Vendor Sales taxes for taxes that you pay on goods or services provided by others, that they pay to a tax agency.

Sales Tax Setup

Before you collect sales tax, create an account for each sales tax agency. To do so, follow these steps:

Choose Other Costs from the Accounts menu.
Click the New button.
Enter details for the account.

Create a separate sales tax rate for each municipality for which you collect taxes. To do so, follow these steps:

Choose Income Setup from the Income menu, and choose Sales Tax from the submenu.
Click the New button.
Enter details for the tax rate (see page 233).
Enter the tax agency into the Paid To Account field.
Click OK.
Repeat steps 2 to 5 for each separate tax rate that you collect.

Charging Sales Tax

To charge sales tax, follow these steps:

Enter a sales transaction or a project bill.
Enter a sales tax rate into the Tax Rate field.
Goldenseal automatically computes the tax amount, and adds it to the amount due to the tax agency.

Paying Sales Taxes

To pay sales tax to a tax agency, follow these steps:

Choose Pay Bills from the Bank menu.
Click in the popup field at upper right, and choose Sales Tax as the item to pay.
You'll see a list of all tax agencies with sales tax due.
To see an itemized list of taxes due, double-click on the agency name.
You'll see an itemized list of every tax item due to this agency.
Click in the Pay column to set the items to include items in this payment, then click OK to return to the main dialog.
To pay taxes, click the Create Checks button.
You'll be asked how to pay for these items. Enter a bank account, or leave the field blank if you plan to pay it later. Then click OK.

Sales Tax Payments

When you use the Pay Bills command for sales tax payments, Goldenseal creates an Other Cost record for each tax payment. It uses a Sales Tax breakdown to itemize every sale or project bill included in this payment.

To view tax payments, follow these steps:

Choose Other Costs from the Costs menu.
Use the browser controls or the Find command to locate a specific payment.

Sales tax payments are very similar to payroll tax payments (see pages 360 to 361).

Sales Tax Reports

After you've made a sales tax payment, you can get a report of the tax payment in a form that is more useful for filling out tax forms. To do so, follow these steps:

Choose Taxes from the Reports menu, and choose Sales Tax Payment from the submenu.
Enter an Other Cost record into the Other Cost field.
Click the Update button.

To see a breakdown of the individual sales, follow these steps:

Turn on the More Details checkbox.
Turn off the Condensed checkbox.
Click the Update button.

Vendor Withholding

Use vendor withholding for taxes that you deduct from vendors and subcontractors. You can also use it for GST tax credits that apply to purchases.

HINT: Vendor withholding is rarely used in the US, but it covers the expense credit portion of GST taxes in Canada and many other countries.

Vendor Withholding Setup

Before you collect vendor withholding, create an account for each tax agency that receives payments. To do so, follow these steps:

Choose Other Costs from the Accounts menu.
Click the New button.
Enter details for the account.

Create vendor withholding rates for each tax that you withhold. To do so, follow these steps:

Choose Cost Setup from the Costs menu, and choose Vendor Withholding from the submenu.
Click the New button.
Enter details for the tax rate (which may be a credit for GST).
Enter the tax agency into the Paid To Account field.
Click OK.
Repeat steps 2 to 5 for each separate tax rate that you collect.

Charging Vendor Withholding

To charge vendor withholding, follow these steps:

Enter a material purchase, a subcontractor cost or an other cost transaction.
Enter a vendor withholding rate into the Withholding field.
Goldenseal automatically computes the withholding amount, adjusts the amount of the purchase, and adds the tax or subtracts the credit due to the tax agency .

Paying Vendor Withholding

To pay vendor withholding to a tax agency or calculate a GST credit, follow these steps:

Choose Pay Bills from the Bank menu.
Click in the popup field at upper right, and choose Vendor Withholding as the item to pay.
You'll see a list of all tax agencies with withholding payments due.
To see an itemized list of taxes due, double-click on the agency name.
You'll see an itemized list of every withholding item due to this agency.
Click in the Pay column to set the items to include items in this payment, then click OK to return to the main dialog.
To pay taxes, click the Create Checks button.
You'll be asked how to pay for these items. Enter a bank account, or leave the field blank if you plan to pay it later. Then click OK.

Vendor Withholding Reports

After you've made a withholding payment, you can get a report of the payment in a form that is more useful for filling out tax forms.

To do so, follow these steps:

Choose Taxes from the Reports menu, and choose Tax Payment By Tax from the submenu.
Enter an Other Cost record into the Other Cost field.
Click the Update button.

Finishing Up

This lesson has explained how to work with taxes, and how to get those tax payments into the mail with a minimum of hassle.

As we all know, taxes are a beneficial thing, and if it weren't for taxes like the Texas Text Tax and the Tennessee Tropical Trinket Transfer Tax, all government action would grind to a halt, chlorophyll would stop synthesizing, and life on this planet would soon cease to exist.

However, we would like to point out that not all taxes are good. For example, a federal Chic Hat Tax is in legislative committee at the House and Senate at this very moment.

This short-sighted act is the work of the powerful scalp-sunscreen lobby, and it will only drive chic-hat purchasers to cross the borders into Canada, France and Mexico for their hat purchases. It will also cause serious economic harm to our embattled wax fruit and duct tape industries.

We urge you to contact your senators and representatives immediately!