Question for you . . .
Hi Crystalynn, if you can answer this – thanks for taking the time!
In Xero, when I go to reconcile deposits from (Shopify payment, PayPal, Stripe, etc) of course, there are always fees (Merchant Processing Fees). After I have lined up all the invoices with the deposits, I must account for these MP fees. In Xero, there is a drop down that says Bank Charges. This is where I put these fees.
After choosing the correct account (Merchant Fees from chart of accounts), a tax rate is next asked for, and must be input into, the merchant fee charges field. This confuses me. Should I just put in 0% tax rate into this field? (because I don’t pay a tax on this fee) Or is there some reason I need to put our ‘default sales tax’ percentage?
This is probably a no-brainer issue but I can’t wrap my head around it, nor can I find any help when researching this issue on line.
thanks for the help!!
It sounds like the default tax code for the Merchant Fees account is set to your sales tax rate instead of zero. To fix this issue, just pull up your chart of accounts and click on the Merchant Fees account to open up the Edit window. Locate the tax field, click the dropdown and select Tax on Purchases (0%). Save your changes. Hopefully this should fix the issue.
We also have a video tutorial on how to set up the chart of accounts and it includes a screenshot of the edit window I’ve described and it explains the purpose of the default tax field.
All the Best-
Crystalynn Shelton, CPA