How to Add and Manage Sales Tax in Square
Learn how to effectively manage sales tax within your Square account, from initial setup to accurate reporting.
Square provides integrated tools to simplify sales tax management. Understanding how to effectively add and manage sales tax within the Square system is important for businesses to ensure compliance. This article guides users through configuring, applying, and reviewing sales tax using Square’s features.
Preparing Your Sales Tax Information
Before configuring sales tax within Square, businesses must determine their specific sales tax obligations. Sales tax rates vary significantly across different jurisdictions, including states, counties, cities, and special districts. Businesses need to research and identify the correct rates applicable to their location and the types of products or services they sell.
It is also important to understand if certain goods or services are tax-exempt in their operating area. Some items, like groceries or certain medical supplies, might be subject to reduced rates or exemptions. Businesses should consult with a tax advisor to ensure they accurately identify all applicable rates and rules before proceeding with the Square setup.
Setting Up Tax Rates in Square
Configuring tax rates in Square can be done through the Dashboard or Point of Sale app. From the Dashboard, navigate to “Settings” > “Account & Settings” > “Payments” > “Sales taxes.” Create new tax rates by clicking “Create tax” or “+ Create a new one,” entering a descriptive name and percentage rate.
When setting up the tax, you can specify its application method. Options include applying the tax to all current and future taxable items at selected locations, or choosing to apply it only to specific items.
Square also allows businesses to determine how the tax is displayed to customers. Options include an “Additive tax,” which is added as a separate line item, or an “Inclusive tax,” where the tax is already embedded within the item’s price.
For businesses operating in multiple locations with varying tax requirements, the system allows for applying different tax rates to specific business locations. It is also possible to toggle on “Apply tax to custom amounts” to ensure tax is collected on manually entered sale amounts.
Applying Sales Tax to Sales
Once tax rates are established in Square, the next step involves applying these rates to products and transactions. For items in your inventory, you can assign a default tax rate by editing the item in your Item Library. You would select the applicable tax from the options you previously created, ensuring that the correct sales tax is automatically applied each time that item is sold.
During a live transaction using the Square Point of Sale app, the system automatically applies the assigned tax rates. However, there might be instances where you need to manually adjust or remove a tax. You can typically view the applied tax rates on the current sale screen and, if necessary, remove a tax by tapping an ‘X’ icon next to it.
For tax-exempt sales, such as those made to a tax-exempt organization, Square allows you to mark specific items or the entire transaction as exempt from sales tax. This feature is also useful for handling services that may be taxed differently or exempt from sales tax compared to physical goods.
Reviewing Sales Tax Reports
Square provides detailed sales tax reports for compliance and financial reconciliation. To access these reports, log into your Square Dashboard and navigate to “Reports,” then “Accounting,” and finally “Sales taxes.” These reports offer a comprehensive overview of tax data, including total sales tax collected and a breakdown of sales by tax rate.
Businesses can use the date selector tool to refine the report for a specific period, such as daily, weekly, or monthly summaries, and apply filters for various locations or sources. The sales tax reports are important for accurately preparing and filing sales tax returns with the appropriate tax authorities. Square also allows for exporting these reports, which can be useful for sharing with an accountant or integrating with other accounting software for more streamlined bookkeeping.