{"id":1253,"date":"2023-04-14T12:56:55","date_gmt":"2023-04-14T09:56:55","guid":{"rendered":"https:\/\/akaunting.com\/hc\/docs\/taxes-and-filing\/selecting-a-tax-type\/"},"modified":"2023-04-24T11:00:34","modified_gmt":"2023-04-24T08:00:34","slug":"selecting-a-tax-type","status":"publish","type":"docs","link":"https:\/\/akaunting.com\/hc\/docs\/taxes-and-filing\/selecting-a-tax-type\/","title":{"rendered":"Selecting a Tax Type"},"content":{"rendered":"\n<p class=\"wp-block-paragraph\">From compound to fixed, inclusive, normal, and withholding, learn the differences between taxes before selecting a tax type. When <code><a href=\"https:\/\/akaunting.com\/hc\/docs\/taxes-and-filing\/adding-a-new-tax-rate\/\" target=\"_blank\" rel=\"noreferrer noopener\">adding a new sales tax<\/a><\/code>, you can define your tax type.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">To select a tax type:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>Go to <strong>Settings<\/strong> on the <strong>Sidebar.<\/strong><\/li>\n<\/ul>\n\n\n\n<figure class=\"wp-block-video\"><video height=\"1080\" style=\"aspect-ratio: 1920 \/ 1080;\" width=\"1920\" controls src=\"https:\/\/assets.akaunting.com\/hc\/2023\/04\/14130127\/selecting-tax-type.mp4\"><\/video><\/figure>\n\n\n\n<ul class=\"wp-block-list\">\n<li>Select <strong>Taxes<\/strong> from the expanded Navigation Menu.<\/li>\n\n\n\n<li>Click <strong>New tax.<\/strong><\/li>\n\n\n\n<li>Enter the required details: Name and Rate (%).<\/li>\n\n\n\n<li>Select a Tax type from the <strong>Type<\/strong> dropdown menu.\n<ul class=\"wp-block-list\">\n<li>Compound<\/li>\n\n\n\n<li>Fixed<\/li>\n\n\n\n<li>Inclusive<\/li>\n\n\n\n<li>Normal<\/li>\n\n\n\n<li>Withholding.<\/li>\n<\/ul>\n<\/li>\n\n\n\n<li>Then, <strong>Save<\/strong>.<\/li>\n<\/ul>\n\n\n\n<h2 class=\"wp-block-heading\">Learn the differences between the tax types.<\/h2>\n\n\n\n<h3 class=\"wp-block-heading\">What is a Compound Tax?<\/h3>\n\n\n\n<p class=\"wp-block-paragraph\">A compound tax will be calculated when you add additional taxes to an item on top of the primary tax.&nbsp;This tax is added to your item cost once the primary tax is added rather than calculated from the untaxed item amount.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">For example, if a product costs $200 per unit and the primary tax is 4.5% VAT, and you add a compound tax of 2% sales tax, then the product\u2019s price after taxes is $210.90.&nbsp;<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Compound tax is calculated as (4.5% VAT + 2% sales tax) x $200 = $210.90.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><strong>What is a Fixed Tax?<\/strong><\/h3>\n\n\n\n<p class=\"wp-block-paragraph\">A fixed tax is a sales tax charged as a percentage of the retail cost at the point of purchase.&nbsp;<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Unlike a compound tax calculated on top of a primary tax, it does not change with the quantity or price of the goods sold.&nbsp;<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">For example, if the purchase price is $35.50 and the sales tax rate is 7.4%, then the fixed sales tax is $2.63 (7.4% x $35.50).<\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><strong>What is an Inclusive Tax?<\/strong><\/h3>\n\n\n\n<p class=\"wp-block-paragraph\">An inclusive tax is included in the price of a product or service.&nbsp;<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">For example, if a product costs $100 and the tax rate is 10%, the inclusive tax price is $110.&nbsp;In such cases, a person must back-calculate to determine the tax value.&nbsp;<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Inclusive tax is different from exclusive tax, which is added to the price of a product or service at the point of sale.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><strong>What is a Normal Tax?<\/strong><\/h3>\n\n\n\n<p class=\"wp-block-paragraph\">A normal tax is collected on retail sales of goods and services at the point of purchase.&nbsp;<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">A normal sales tax is usually charged as a percentage of the retail cost, collected by the retailer, and passed on to the government.&nbsp;<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">This tax may vary by state, county, and city and may have some exemptions for certain items or categories.&nbsp;<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">For example, a state might have a 4% sales tax, a county 2%, and a city 1.5%, so residents pay 7.5% in total.&nbsp;A normal sales tax differs from a value-added tax (VAT), which is applied at every stage of production and distribution based on the value added to the product or service.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><strong>What is a Withholding Tax?<\/strong><\/h3>\n\n\n\n<p class=\"wp-block-paragraph\">Withholding tax is a sales tax that is withheld by the customer from the payment to the supplier and paid directly to the tax authority.&nbsp;<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">A withholding sales tax is imposed by some tax authorities to increase tax compliance and secure earlier receipt of tax revenues.&nbsp;<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">For example, if a customer owes $1000 to a supplier and the withholding sales tax rate is 10%, then the customer will pay $900 to the supplier and $100 to the tax authority on behalf of the supplier.&nbsp;<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">The supplier can then reduce its subsequent tax liabilities by the amount already paid by the customer.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>From compound to fixed, inclusive, normal, and withholding, learn the differences between taxes before selecting a tax type. When adding a new sales tax, you can define your tax type. To select a tax type: Learn the differences between the tax types. What is a Compound Tax? A compound tax will be calculated when you [&hellip;]<\/p>\n","protected":false},"author":2,"featured_media":0,"parent":1241,"menu_order":4,"comment_status":"open","ping_status":"closed","template":"","doc_tag":[],"class_list":["post-1253","docs","type-docs","status-publish","hentry"],"acf":[],"_links":{"self":[{"href":"https:\/\/akaunting.com\/hc\/wp-json\/wp\/v2\/docs\/1253","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/akaunting.com\/hc\/wp-json\/wp\/v2\/docs"}],"about":[{"href":"https:\/\/akaunting.com\/hc\/wp-json\/wp\/v2\/types\/docs"}],"author":[{"embeddable":true,"href":"https:\/\/akaunting.com\/hc\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/akaunting.com\/hc\/wp-json\/wp\/v2\/comments?post=1253"}],"version-history":[{"count":3,"href":"https:\/\/akaunting.com\/hc\/wp-json\/wp\/v2\/docs\/1253\/revisions"}],"predecessor-version":[{"id":1578,"href":"https:\/\/akaunting.com\/hc\/wp-json\/wp\/v2\/docs\/1253\/revisions\/1578"}],"up":[{"embeddable":true,"href":"https:\/\/akaunting.com\/hc\/wp-json\/wp\/v2\/docs\/1241"}],"wp:attachment":[{"href":"https:\/\/akaunting.com\/hc\/wp-json\/wp\/v2\/media?parent=1253"}],"wp:term":[{"taxonomy":"doc_tag","embeddable":true,"href":"https:\/\/akaunting.com\/hc\/wp-json\/wp\/v2\/doc_tag?post=1253"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}