Do I count sales tax I collected as income in my small business?

[MinhT · Accepted solution]

Yes, you include sales tax collected in your income.

Sales tax paid to the taxing authority is claimed as an expense.

[DEOB]

No.  Sales tax is a liability neither income or an expense. You are collected it on behalf of the government. It is the government money not yours.

Read this article:

https://www.accountingcoach.com/blog/are-the-sales-taxes-collected-by-a-retailer-included-in-its-sal...

https://www.accountingcoach.com/blog/sales-tax-liability

[Critter]

Actually either answer is correct as long as you're consistent in your bookkeeping. so if it's easier for you to enter in the gross income including the sales tax and then expensing the sales tax then do it that way. Otherwise if your bookkeeping allows you to pull the sales tax from your gross and only enter the net income and leave the sales tax expense blank.

[Carl]

I recommend you include *ALL* business income in the gross business income. Then you include the sales tax paid to the taxing authority in the amount on line 23 of the SCH C. Remember, states are not the only taxing authority that can impose a sales tax. Such a tax can be imposed at the county level, city level and even township level. By including the taxes collected in your gross business income you can then itemize them for the type of tax they are in the "Taxes and Licenses" section of the program. Then should you ever be audited by a lower level taxing authority you have yet another paper trail to reinforce your position on weather you paid those taxes or not, and if the amount paid was correct or not.

The "Taxes and Licenses" data entry category is located in the Business Expenses section of the program.

[silviagmorales]

I have a followup question. If the sales tax is reported as a liability to the government, and when you pay if the amount that is paid is less due to discount for paying early, does the remaining liability gets reduced and a sales tax income/revenue gets recorded?  

[ZoltanB45]

Sales tax collected is not revenue. Both answers are not correct. Sales tax collected is a liability.. That is accounting and bookkeeping 101. Similar to when a POS system includes Tips, you do not add the Tips to income. It is not even debatable. If you want to do it right, enter the sales amount and not sales plus sales tax.

[ZoltanB45]

As far as the follow-up question, the liability is for your own bookkeeping purposes when it comes to a schedule C. I have never seen the early pay discount be recorded as income, but if you like, you could throw it to other income and not part of sales.

[Taxes made ez florida]

When answering go right to the source IRS.GOV

definition: Gross receipts are the total amounts the organization received from all sources during its annual accounting period, without subtracting any costs or expenses.

https://www.irs.gov/charities-non-profits/gross-receipts-defined#:~:text=Gross%20receipts%20are%20th...

Then put taxes collected on taxes and licenses.

[Taxes made ez florida]

irs.gov says different please read

https://www.irs.gov/charities-non-profits/gross-receipts-defined#:~:text=Gross%20receipts%20are%20th...