Tax items allow you to collect and track taxes on goods and services in your business. Define your tax rates once, then apply them consistently across all your financial documents.
What Are Tax Items?
Tax items are reusable tax rate definitions that you create once and use throughout your business. When you need to charge sales tax, state tax, or any other tax on your services, you add the appropriate tax item to your estimates, invoices, or change orders.
Key Benefits:
- Consistency: Define tax rates once, use everywhere
- Tracking: See exactly how much tax you've collected for each tax type
- Flexibility: Apply different taxes to different items as needed
- Accuracy: Reduces manual calculation errors
Where to Find Tax Items
Tax items are located in the Business section of the app:
- Open the navigation menu
- Select Business
- Choose Tax Items
Creating Tax Items
You have two ways to create tax items:
Option 1: Manual Creation
- Navigate to Business → Tax Items
- Tap the + button
- Enter the following information:
- Tax Name: Descriptive name (e.g., "State Tax", "Sales Tax", "Local Tax")
- Tax Rate: Percentage amount (e.g., enter "5.5" for 5.5%)
- Set whether the tax is Active (enabled for new documents)
- Tap Save
Tax Rate Format:
- Enter rates as percentages:
1= 1%,8.25= 8.25% - Do NOT enter decimals like 0.01 - just enter the percentage number
- The system automatically formats and displays the % symbol
Option 2: AI Agent Creation
Use the AI assistant to create tax items with natural language:
- Navigate to Business → Tax Items
- Tap the AI assistant button (robot icon)
- Type a command like:
- "Create tax item state tax 2%"
- "Add sales tax at 8.5%"
- "Create local tax 1%"
- The agent will create the tax item for you
How Tax Items Work
Using Tax Items
Once created, tax items can be applied in several ways:
1. Business Items (Predefined Services)
When creating a business item (your standard services/products), you can assign default tax items. These taxes are defaults only - when you add the business item to an estimate or invoice, the taxes are automatically included, but you can remove them or add different taxes to that specific line item as needed.
2. Directly on Financial Documents
You can add or change taxes on individual line items in:
- Estimates: When quoting work
- Invoices: When billing for completed work
- Change Orders: When modifying job scope
Flexible Application: Taxes are calculated on a line-item basis, which means:
- You can mix taxable and non-taxable items on the same document
- Only items with taxes applied will have tax calculated
- Each line item can have different taxes or no taxes at all
Tax Calculation
When you apply a tax item to a line item:
Example:
- Service cost: $100.00
- Tax item: "State Tax" at 5%
- Tax amount: $5.00
- Total with tax: $105.00
The system automatically calculates the tax amount and adds it to the total.
Calculation Methodology:
- Tax is calculated per line item based on the actual amount
- If a discount is applied, tax is calculated on the discounted amount (e.g., $100 item discounted to $60 is taxed on $60)
- Individual line item tax amounts are then totaled for the document
- Each tax type is displayed individually in the totals section
Example with Discount:
- Original service cost: $100.00
- Discount applied: $40.00
- Discounted cost: $60.00
- Tax item: "State Tax" at 5%
- Tax amount: $3.00 (5% of $60.00)
- Total with tax: $63.00
Multiple Taxes
You can apply multiple different taxes to the same item if needed. Each tax type is calculated and displayed separately (not compounded).
Example:
- Service cost: $100.00
- State Tax (5%): $5.00
- Local Tax (2%): $2.00
- Total with taxes: $107.00
Note: HomeGuild does not support compound taxes (taxes on taxes). All taxes are calculated independently based on the line item amount.
Tax Tracking and Reporting
HomeGuild tracks all tax collected across your business:
- View total tax collected by tax type (displayed individually)
- See tax collected per invoice/estimate
- Track tax reductions from change orders or refunds
- Generate reports showing tax collected over time (enhanced reporting coming soon - see a future update)
Tax Decrements: If you reduce an item through a change order or issue a refund, the tax collected is automatically reduced to reflect the adjustment. This keeps your tax records accurate.
Scope Note: HomeGuild is currently optimized for US-based tax collection systems. If you're using other tax systems (VAT, GST, etc.), the functionality will work, but terminology and examples are US-focused.
Important Tax Compliance Note
⚠️ HomeGuild does NOT manage or enforce tax compliance for your location.
Your Responsibility:
- Research applicable tax rates for your location
- Determine which services/products require tax
- Stay current with tax law changes
- Consult with an accountant if unsure
We Recommend: Work with a qualified accountant to ensure you're collecting the correct taxes at the correct rates for your specific location and business type.
Common Tax Item Examples
Here are typical tax items businesses create:
| Tax Name | Rate | Common Usage |
|---|---|---|
| Sales Tax | 7-10% | General goods and services |
| State Tax | 2-6% | State-level taxes |
| Local Tax | 0.5-2% | City or county taxes |
| Service Tax | Varies | Service-specific taxes |
| Materials Tax | Varies | Materials-only taxes |
Tips & Best Practices
Naming Tax Items
Use clear, descriptive names:
- ✅ Good: "California State Tax", "Seattle Sales Tax", "Materials Sales Tax"
- ❌ Avoid: "Tax 1", "T", "Sales"
Clear names help you and your team apply the correct taxes.
⚠️ Common Mistake: Duplicate Tax Items
Avoid creating multiple tax items with inconsistent naming that represent the same tax:
- ❌ Don't create both: "State Tax", "State Sales Tax", "ST Tax", "Sales Tax - State"
- ✅ Instead: Choose one clear name like "State Sales Tax" and use it consistently
Duplicate or inconsistently named tax items lead to confusion, reporting errors, and difficulty tracking total tax collected. Review your tax items periodically to ensure consistency.
Active vs Inactive
- Active: Tax appears as an option when creating new estimates/invoices
- Inactive: Tax is hidden but still tracked for historical documents
Use inactive status for:
- Old tax rates that changed
- Seasonal taxes no longer in effect
- Taxes you no longer need to collect
Note: You can delete tax items, but deletion rules are being defined to prevent data integrity issues (coming soon). For now, marking items as Inactive is recommended.
Organizing Multiple Taxes
If you operate in multiple locations with different tax rates:
- Create separate tax items for each location
- Include the location in the name (e.g., "Portland Sales Tax", "Seattle Sales Tax")
- Only activate taxes for your current operating locations
When to Set Up Tax Items
During Initial Setup (Recommended): It's advisable to create your tax items during the initial business setup so they're ready when you create your first estimates and invoices.
When Tax Items May Not Be Needed: Many businesses don't need to collect taxes. You may not need tax items if:
- You provide services only (labor without materials/products)
- You're reimbursing yourself for retail items you purchased (no wholesale goods)
- Your business type or location doesn't require tax collection
- You only work on tax-exempt projects
Setup is Optional: Tax items are not mandatory. Create them only when your business requires tax collection.
Checking Your Tax Collections
Regularly review your tax tracking to ensure:
- Correct taxes are being applied
- Tax amounts match your expectations
- All taxable items have appropriate taxes
- Tax reductions from refunds are properly recorded
Troubleshooting
Tax Rate Seems Wrong
Problem: Entered "1" but seeing unusual behavior Solution: Enter "1" for 1%, not "0.01". The system expects percentage format.
Problem: Tax calculation doesn't match expectations Solution:
- Verify the tax rate entered
- Check if multiple taxes are applied
- Confirm the subtotal is correct
Tax Not Appearing on Documents
Problem: Tax item not showing as an option Solution:
- Check if the tax item is set to Active
- Verify you're looking in the correct tax selection area
- Ensure the tax item was saved successfully
Need to Change a Tax Rate
Best Practice: Don't edit existing tax items if they've been used on invoices.
Instead:
- Set the old tax item to Inactive
- Create a new tax item with the updated rate
- Use the new tax item going forward
This preserves accurate historical records while allowing the new rate for new documents.
Note: The exact impact of editing tax rates on existing documents is being researched (coming soon). Until this is clarified, follow the best practice above to avoid potential issues.
Related Features
- Business Items: Assign default taxes to your standard services
- Estimates: Apply taxes when quoting work
- Invoices: Apply taxes when billing
- Change Orders: Adjust taxes when modifying work scope