Tracking and managing taxes

No matter where you live or operate your business, CORE can address most tax scenarios for you; and after set up, simple reporting can help you manage the flow of taxes through your financials. For tax laws and regulations in your jurisdiction, please consult a CPA.

System for Tracking and Managing Taxes

Settings

Client Taxes

Project Taxes

Item Taxes

Using CORE to Manage and Track Taxes

Purchase Tax

Tax Reporting

System for Tracking and Managing Taxes

After the ground rules are established, it is important to know how CORE can track taxation.

Taxes for accounts receivable transactions (invoices to your clients) can be set at the project level to tax all services and/or all expenses, or at the item level to tax some services and/or some expenses while leaving others untaxed. CORE can also address different types of taxes (federal, state, and local tax) by using the distinct Item level fields (Tax 1, Tax 2, and Tax 3). These are separate fields used for tracking different taxes. Taxes for accounts payable transactions (payments to vendors and employees) are set at the expense item level using the Purchase Tax field.

You can also set your own tax rates at different levels according to your requirements and location. 

Settings

You can define the default rates for both the project-level taxes and item-level taxes in the Settings > Billing & Invoices > Tax Rates screen. If you can apply taxes on all invoiced services (labor) or expenses, then set up the project-level taxes:

  • Sales Tax for services
  • Sales Tax (E) for expenses

If you can only apply taxes to some invoiced services (labor) or expenses, then use the item-level taxes:

  • Tax Rate 1
  • Tax Rate 2
  • Tax Rate 3

In both cases, CORE offers distinct fields for tax rates on services and expenses so that these values may be set and tracked independently.

Note: CORE automatically renames the project-level taxes for files set up in certain countries. For example, in Australia and Canada, 'Sales Tax' is called 'GST' and 'Sales Tax (E)' is called 'GST (E)'.

Each time you set up a new client, activity, or expense item, CORE applies the tax rates defined in the Settings > Billing & Invoices > Tax Rates panel. However, you can edit them at the client, project, activity, and expense item level, as needed. You can also set a ceiling on these taxes or choose to hide the tax fields you do not use.

Client Taxes

The default project-level tax rates (Sales Tax and Sales Tax (E)) from Settings are brought forward at the client-level as new clients are created. You will find these in the Clients > General > Billing Options panel.

You can change these rates on individual clients as needed. You can also choose to exempt the specified client from item taxes, namely Tax 1/2/3, by selecting the 'Exempt client from all taxes' rule. If using both project-level and item-level taxes, then use the 'No tax on tax' option to prevent double taxation (tax on tax).

The settings on the Clients > General > Billing Options tab will pull to new projects created for the client. They can be adjusted, as needed, on a project-by-project basis.

Note: The billing options set for the projects control how the project is billed. These options on the Clients screen are used to set defaults for the client. Therefore, we recommend setting the tax rules at the client-level to align with the most common tax scenario for each client.

Project Taxes

When a new project is created, the project-level tax rates (Sales Tax and Sales Tax (E)) from the client record are set on the new project. You can change the rates in the Projects > Settings > Billing Options panel.

To control how item-level taxes interact with project level taxes, use the project rules found on the Projects > Settings > Assignment tab.

If you are using item-level taxes—and they are not to be applied to the specified project—then select the Exempt item tax 1/2/3 project rule. This will prevent CORE from applying the item-level taxes, namely Tax 1/2/3, to any of the time and/or expense entries within the project.

If you are using both project and item-level taxes, then use the No tax on tax option to prevent double taxation (tax on tax).

We recommend setting the rates and rules for taxation at the project-level because this is where they must be defined in order to control the specific project. Setting these rules at the client-level is done to set the default setup for the client’s projects.

There is a workflow to these project-level settings. When specified in Settings, the taxation rules are inherited by newly created clients. Each client may be adjusted as needed. When set, new projects created for the client will inherit the settings from the Clients > General > Billing Options panel. The projects may also be adjusted to meet specific billing requirements.

Item Taxes

Line item taxes for time entries (labor or services) are set on the Activity Items screen. Similar taxes for expenses are set on the Expense Items screen. You will find them listed as Tax 1, Tax 2, and Tax 3 on both screens.

 

Item taxes are generally used when you can only charge taxes on some not all services or expenses. If you can charge taxes on all services or expenses, or do not charge taxes at all, then you can ignore these fields. If you must charge taxes on some services or expenses, then you should use the item-level taxes.

Item-level taxes may also be used in conjunction with project-level taxes if you need to track two different types of taxes through your general ledger accounts. CORE offers the ability to set different liability accounts for item and project level taxes in the Settings > Add-ons > Accounting > Tax Accounts panel.

 

These tax rates can be defined on a company-wide basis from the Settings screen, then adjusted on an item-by-item basis when creating items.

Using CORE to Manage and Track Taxes

In CORE, just remember to take it one step at a time.

  • Taxes for accounts receivable transactions (sales) are set up separately from taxes for accounts payable transactions (purchases).
  • Taxes for sales may be set up at the project-level or the item-level.
  • Taxes for purchases are only set up at the expense item level.

When using project-level taxes for sales transactions, taxes are calculated on the total value of services and expenses. They do not affect the individual time and expense entries. You might know them as Value Added Tax (VAT) in the U.K. or as Goods and Services Tax (GST) in Canada. Sometimes, you have the combined Harmonized Sales Tax (HST) that replaces the provincial sales tax (PST) and GST.

When using item-level taxes for sales transactions, the taxes do impact the individual time and expense entries. You can specify three different tax rates (Tax 1, Tax 2, and Tax 3) per item, which CORE then sums up and applies the total percentage to the pre-tax charge amount.

By default, project-level taxes are not included in the project contract amount while item-level taxes are included in the project contract amount. You can edit the taxes to include in the Settings > Projects > General panel. Use the Contract Includes drop-down to select an option:

  • No Taxes
  • Item Taxes Only
  • All Taxes (Main + Item Taxes)

You can also customize the tax labels for your jurisdictions in the Settings > Display & Formatting > Custom Labels panel.

Purchase Tax

Purchase Tax is very important for tracking GST, HST, or VAT. It tells you how much tax your company paid on an expense. In CORE, the Purchase Tax Rate is specific to expenses. As such, it is defined on the Expense Items detail view of the individual expense item and entered as a percentage (e.g., “10” for a 10% purchase tax rate).

 

If all or most of your expense items have the same purchase tax rate, then you can use the Batch Update feature under the Expense Items > Actions menu to set the purchase tax rate for all expense items. You may then edit individual items if they have different purchase tax rates.

When the Purchase Tax Rate field is used in Expense Items, then you should enter the amount of the expense, including purchase tax, in the Cost Rate field in Expense Entries, Checks, Credit Cards, and Vendor Bills screens.

If you need to specify a different purchase tax rate percentage or a distinct dollar value for the purchase tax, then you may expose the Purchase Tax Rate field on the Expense Entries or Vendor Bills screens. To specify a different percentage, simply enter the percentage into the Purchase Tax Rate field (e.g., enter '10' to specify a percentage of 10%).

 

To specify a distinct dollar value, precede the dollar value with the dollar sign when entering it into the Purchase Tax Rate field (e.g., enter '$2.00' for a $2.00 value of purchase tax).

 

CORE uses the Purchase Tax Rate to calculate the correct pre-tax amount as well as the correct purchase tax amount. This ensures that the correct values are posted to the respective general ledger expense and tax accounts for the payable transaction.

Defining the correct pre-tax amount is also important if the expense will be billed to the client. It ensures that any mark-ups are calculated on the pre-tax amount. It also ensures that any taxes (project-level or item-level) are calculated on the pre-tax amount, thus preventing a tax-on-tax situation.

For example, to enter a taxi fare expense of $110 that included 10% GST ($100 fare + $10 GST = $110 total expense), you should enter $110 into the Cost Rate field of the expense entry. If the expense item used has a Purchase Tax Rate of 10, then CORE will calculate the pre-tax value of the fare to be $100 and the purchase tax to be $10. When charging no sales tax to your client:

  • the total Cost Amount will reflect as $110
  • the Purchase Tax Rate will reflect as 10
  • the Charge Amount will reflect as $100

When using project-level taxes, the result will be the same because project-level taxes are applied at the time of billing and do not affect the individual expense entry.

 

This is different when using item-level taxes as they do affect the individual expense entry. Using the previous example, assume you are applying a Tax 1 rate of 5% on the expense item. In this case, the Cost Amount will still reflect as $110. The Charge Amount, however, will be reflected as $105 because CORE is applying the 5% Tax 1 rate to the $100 pre-tax amount to calculate the Charge Amount of the individual expense entry.

 

If you do not use the Purchase Tax feature and must charge taxes based on the pre-tax amount, then you should enter expense costs, excluding taxes, to prevent a tax-on-tax situation.

Tax Reporting

CORE offers several reports to assist with taxes.

  • Invoice Register: This report documents the value of taxes billed for services and expenses at both the project and item level.
  • Tax Tracking: This report documents the values of taxes paid and collected and displays the difference as the 'Tax Owed', making it easier to report to your tax agency.
  • Taxes: This report provides information about state taxes charged. It can be grouped by either the client or project state fields to provide the value invoiced in a state. This is important when you need to report this value to state tax agencies.

A diligent setup of the tax fields in CORE can create a seamless tracking experience to address all of your tax reporting needs as well as those for your clients. For more on taxes in CORE, check out CORE Help Center.

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