How to set up an invoice for a sales tax audit
When issuing invoices to clients, it is imperative to break out the charges. For example, if you have shipping, installation, or even training charges, then, you must state it as such. Otherwise, the entire invoice will become taxable!
Example 1: A poorly-written invoice
| Quantity | Item | Price | Total |
|---|---|---|---|
| 1 | Accounting Software & Misc. | $300 | $300 |
| SALES TAX (8%)TOTAL | $24$324 |
Example 2: A well-written invoice
| Quantity | Item | Price | Total |
|---|---|---|---|
| 1 | Accounting Software License | $100 | |
| 1 | Training | $100 | |
| 1 | Installation | $100 | $300 |
| SALES TAX (8%) | $8 | ||
| TOTAL | $308 |
Summary:
As you can see, the second invoice works out better for a sales tax audit. Use this format when you are invoicing your clients, otherwise, the entire sale is taxable such as in the case of Example 1.
How to set up an invoice for a sales tax audit