Feedback wanted for Tax Report
Today I’ve been working on adding a report to ProfitTrain that would allow users to easily tally up the taxes they have collected from clients. Sadly I’ve come up with a few edge cases that make the whole thing a mess and am debating how I should move forward.
To explain, the report system asks the user for an optional date range; if none is given we process all the the objects in the system. The first question when it comes to taxes is which objects should we consider, invoices or payment transactions?
In ProfitTrain’s other reports we calculate using the cash method of accounting, which in short means we don’t consider something income until we have gotten paid. Simply sending an invoice to a client does not affect your income. IE: When you run the monthly income report in ProfitTrain we are tallying up payments not invoices.
With that understood the natural progression is to base this tax report on payment transactions. We haven’t “collected” any taxes until we actually got paid right?. For example, you invoice a client in December but he doesn’t pay it till January; when did you collect the taxes? In January.
This works well but falls apart when an invoice isn’t paid in full and/or involves more than one payment transaction. Let’s say you invoiced a client in November, he sends a very small payment in December which might not even cover all the taxes of the original invoice. He eventually pays the rest in January but when you did your end of year totals did you consider the taxes collected? When were they collected?
For a little while I considered the idea that if we received X percent of the total due we should match that percentage of the taxes. However this is even made more complicated since not every line item in a invoice is taxable.
Yikes. The whole thing is a bit of a mess and I’m curious how other people handle it. I myself never had to charge taxes when I was consulting and while I do collect some sales tax for web-purchased software it happens all at once and at the same time of the transaction.
My gut says I’m going to have to limit my reporting to tax totals requested on invoices send in a date range but I want to hear your thoughts. If you want to keep it private please send me an email.
Update: After taking some time to ponder and getting some shared wisdom from fellow developers I have concluded I will keep things as simple as possible and offer a report for “Invoiced Taxes” which will total up, by month, all the taxes that were present on published invoices.
The goal of ProfitTrain is not to be your accountant. ProfitTrain servers as a place to store data about your business. When it comes time to calculate your income and taxes for the IRS or it’s international counterparts you need to make educated decisions about what happened and when. If I start making assumptions about how people calculate stuff I will fall down the accounting well for which I will regret. My goal is to provide you basic totaling in the app itself and access to the data (via CSV export) to do more exotic totaling.
Posted on: February 1, 2010 – 8:21 PM
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