How to Calculate Sales Tax for Your Small Business: A Simple Guide

  • Accracy
  • 26th Nov, 2023

Small business bookkeeping is a necessary business task, but if it's not your favorite activity, you're not alone. Admiring your profits is always fun, but going over ledgers and calculators? Maybe not as much.

How to Calculate Sales Tax for Your Small Business: A Simple Guide
Tax Tips

If you want to crunch the numbers a bit faster and get back to the more exciting parts of your business, we have a few bookkeeping tips to help simplify (and speed up) the process.

Make bookkeeping part of your routine

DIY bookkeeping is simplest when you break it into manageable chunks—don't try to do it all at once. As much fun as a last-minute, panic-fueled bookkeeping cram session can be right before tax time, you can do your future self a favor by taking care of routine bookkeeping tasks every week.

These tasks can include the following:

· Check on invoices and record payments

· Review and pay expenses and invoices

· Balance the business checking account

· Categorize expenses and incoming payments

· Record and file all receipts and documents

· Compile and review your financial statements

When you've finished your checklist, you should be up to date with your current records. A simple bit of work every week will ensure you have clean books all year. Best of all, it doesn't feel like work when it's part of your small business bookkeeping routine.

Separate personal and business finances

Keep your finances separated. When your business income mixes with your personal accounts, it doesn't make more money—it just makes a mess. Muddled accounts require extra time and energy to sort through, so skip the confusion and keep it simple by maintaining separate bank accounts—one for your personal expenses and another for your business expenses.

If you've never set up a business bank account before, getting started is easy. First, find a bank that offers the best fit for your business needs—even if you already have a relationship with a bank, it doesn't hurt to consider other options. Your priorities may vary, but consider looking for an account that offers no or minimal bank fees.

Helpful resources:

Once you've chosen your bank, you can set up a new account quickly and easily. Your business bank account will allow you to set up a debit card for any online payments or purchases. Most importantly, all of your business transactions—whether online, through the debit card, or via checks—will be reflected in the same account, which will simplify the reconciliation process.

Separating your accounts doesn't mean that your business doesn't pay you, of course. You can withdraw a regular salary from the business or, if you're a sole proprietor, pay yourself using the draw method. These withdrawals, also known as an owner's draw, are easy to track and document in your bookkeeping. Whether you pay yourself officially by draw or salary, those transfers should be recorded in your business account statements.

Helpful resource: How to Pay Yourself With an Owner's Draw Vs Salary

When you've separated your accounts, bookkeeping is as simple as linking your business bank account to your accounting software. When you check your single account during your weekly bookkeeping session, it should be a breeze to categorize the purchases and record the payments. No parsing or fine-tooth-combing required!

Document everything

Let's just get this out of the way: the IRS can audit you for up to six years. That means clean records are critical. Storing those records for at least six years is also important, but ultimately, maintaining a reliable accounting of debits and credits is what lets you sleep peacefully every night.

Helpful resource: How Long to Keep Business Tax Records and Receipts

To ensure that peaceful slumber, form a habit of documenting everything. Save receipts. Jot down notes about purchases and expenses and throw them in the file. Document every single cash purchase. Issue your own receipts for all purchases. Develop a storage system and naming protocol for invoices, receipts, and records. It might even be time to invest in a receipt scanner app.

If you're wondering which expenses to keep track of, remember: document and store accurate records of every transaction involving money, time, or goods.

Record and categorize your documents every week during your weekly bookkeeping session. Quick, regular audits of your documentation and transactions will ensure that you'll never have a stressful night's sleep—at least as far as your books are concerned.

Monitor accounts receivable

Monitoring your accounts receivable is easily the most enjoyable of small business bookkeeping tips—counting your money is always fun. Make a point of monitoring your accounts to be sure that all your invoices are being paid, especially if your work comes before the client's payment. It's easy to get distracted and forget to invoice previous clients when you're busy starting the next project

Simplify your accounts receivable and ensure the cash keeps flowing by routinely following through on your invoicing tasks. Your weekly accounts receivable tasks should include:

· Sending invoices

· Clearing paid invoices

· Recording and tracking payments

· Noting cash payments to ensure a clear document trail

· Following up on any unpaid invoices

Keep track of cash payments

Cash may be king, but it needs a bit of extra attention when it comes to DIY bookkeeping. You don't ever want to lose track of your cash, and unlike checks or online payments, cash doesn't come with handy documentation. That means there's no paper trail until you create one. Thankfully, once you have a simple system in place, documenting your cash flow is easy.

There are two ways to handle cash payments. With the first, you'll create a receipt for every cash payment you receive. Use a receipt book that makes immediate duplicate records so you can write a quick receipt for a customer and keep a record for yourself.

If you don't carry a receipt book with you everywhere you go, you can always rely on technology. Keep track of your cash using cloud software that links through multiple devices, like your phone or laptop. This way, your cash-tracking document or app is always readily accessible. You can use your streamlined online system to note how much cash is exchanged and why. When you make a cash payment, ask for a receipt to support your recordkeeping when you update the transactions later.

Routinely cross-check receipts and cash flow during your weekly bookkeeping session to keep your cash systems polished and up-to-date.

Consistently review financial reports

When you're updating your numbers every week, you can pull reliable financial documents at any time. Straightforward accounting software allows you to view your income statement and balance sheet at the click of a button. Want to know how you're doing this quarter? This year? Today? Find out immediately.

When accurate financial reports are so readily available, it only makes sense to check them routinely in order to take the temperature of your business. Consider adding this as the final task on your weekly bookkeeping check-in. After you've entered your transactions and double-checked your documentation, run a quick report. Share it with others who like to see how much money you're making and then get back to work. Few things are quite as motivating as a weekly income statement.

Helpful resource: How to Read and Analyze Financial Statements

Get automated

Nothing simplifies your life like automation. Unless you're dying to break out adding machines and slide rules, feel free to take advantage of the many bookkeeping apps and software on the market.

With the right combination of banking and accounting apps, you can skip most of the straight data entry required for bookkeeping. Once you find the right bookkeeping software for your needs, your bookkeeping tasks shrink substantially: instead of entering every transaction, you're simply double-checking them.

Looking for the best ways to automate your accounting? We have some bookkeeping tips that can help.

Let someone else handle it

You know what's even better than using software to automate your bookkeeping? Letting a professional bookkeeper handle it.

Your business requires your full attention, and sometimes your best choice is the easiest one—outsource the tasks you don't have time for so you can focus on the work that really matters to you. A professional bookkeeper won't be overwhelmed by the nuts and bolts of DIY bookkeeping, and their help allows you to focus on making money, not documenting it.

Further reading:

Want to work smarter, not harder? Let Accracy handle the bookkeeping for you! When you sign-up with Accracy, you'll get an easy-to-use platform and direct access to your in-house small business bookkeeping team. The return on investment with a dedicated bookkeeper may surprise you. Plus, when tax season rolls around, you can take comfort in knowing your financials are 100% correct and ready to be handed off to your accountant.

Simplify, automate, and ultimately delegate your bookkeeping.

Free 1 Month Bokkeeping Trial

New Customer Offer

We are offering free 1 Month Basic Bookkeeping to all new customers so you can experience Accracy's seemless and professional services.

* No Debit/Credit Card Required

Blog Posts

An Overview of Tax Implications for Foreign-Owned Businesses in the U.S.
An Overview of Tax Implications for Foreign-Owned Businesses in the U.S.

See the tax forms that most foreign-owned businesses operating in the U.S. will need to file.

Law Firm Bookkeeping 101
Law Firm Bookkeeping 101

Law firm bookkeeping can be tricky. If you're not sure where to start, these best practices can help.

Working Capital: What It Is and How to Calculate It
Working Capital: What It Is and How to Calculate It

Having working capital can mean having funds to invest in new technologies and growth. But what does it tell you and how do you measure it? We've got you covered from understanding working capital to making the most of it.

Ready to grow your business?