What is the difference between input tax and sales tax?
August 14, 2023 | 30,00 EUR | answered by Marco Schottmann
Dear tax advisor,
I am Christiane Köhler and I have a question regarding input tax and sales tax. I do not quite understand the difference between these two terms and how it affects my tax situation.
Here is the situation: I run a small online trading company and am therefore required to charge sales tax on the products I sell. At the same time, I also purchase goods and services for which I pay input tax. However, I do not know how these two types of taxes differ from each other and how to correctly handle them in my accounting.
Currently, I calculate sales tax on my income, but I am unsure of how to claim input tax on my expenses. I am worried that I may make mistakes and end up having issues with the tax authorities.
My question to you as an expert is: Can you please explain the exact difference between input tax and sales tax and provide possible solutions on how to correctly handle both types of taxes in my accounting? It is important to me that I comply with the tax regulations and avoid making mistakes.
Thank you in advance for your help and support.
Best regards,
Christiane Köhler
Dear Mrs. Köhler,
Thank you for your question regarding input tax and sales tax. It is understandable that as the operator of an online trading company, you may have uncertainties regarding the correct treatment of these two types of taxes. I would be happy to explain the exact difference between input tax and sales tax and provide you with solutions on how to correctly handle both types of taxes in your accounting.
Sales tax is a consumption tax levied on the sales of a business. It is a tax that can be incurred on the sale of goods or services. As a business owner, you are required to calculate sales tax on your sold products and remit it to the tax office. Therefore, sales tax is paid by your customers and forwarded to the tax office by you.
Input tax, on the other hand, is the sales tax that you as a business owner pay on your purchases of goods and services. So when you purchase goods or services for your business, the seller will issue you an invoice with the specified sales tax (input tax). You can claim this input tax as operating expenses and deduct it from the sales tax you calculate on your sold products. This way, input tax is effectively offset against sales tax.
To correctly handle both types of taxes in your accounting, it is important that you carefully document all the income and expenses of your business. You must ensure that you correctly state the sales tax on your invoices and remit it to the tax office. At the same time, you should collect all incoming invoices with specified input tax and record them in your accounting. By offsetting input tax against sales tax, you can ensure that you comply with tax regulations and avoid making mistakes.
Additionally, I recommend that you stay informed about current tax changes and, if necessary, consult a tax advisor or accountant to assist you in the correct treatment of input tax and sales tax.
I hope that this information has been helpful to you and I am available for any further questions.
Best regards,
Marco Schottmann
Tax Advisor
