What is a Tax Invoice?
A tax invoice is a document that breaks down the goods or services purchased by an individual or entity from another individual or entity and the corresponding taxable amount for all eligible goods or services purchased. A simple invoice is also called a non-tax invoice because it does not account for the taxes payable for that specific transaction.
Tax is collected to fund government projects and to redistribute wealth. In the United States, there is no standard tax rate at the federal level. Instead, states are empowered to implement their own taxation schemes which cause different tax rates across the country. This is also why different invoices from different states will include different names for the levied tax. For example, your invoices and receipts may show sales invoice tax, GST (goods and services tax), VAT (value-added tax), local tax, etc.
How to Create a Tax Invoice
To comply with your local taxation laws, there is a multitude of blank tax invoice templates that you can copy and use for your business invoice. However, if you want to ensure the validity of your own tax invoices, we’ve prepared a short list of invoice-making tips. Read more about them below.
1. Make Sure All Tax Invoice Components are Included
In the United States, the following components should be found in your sample invoice for them to be considered as valid business documents: 1) the name and address of the buyer and the seller, 2) the date of purchase or sale, 3) description of the purchased goods and services, 4) quantity of goods purchases, 5) cost of each purchased item, 6) currency, 7) discount amounts or rebates, 8) additional charges like shipping fees, etc, 9) tax invoice number, 10) if the item is imported, the country of origin and the port of entry, and 10) tax amount.
2. Don’t Forget to Add Your Business Name or Logo
Just like other business documents, tax invoices are considered more trustworthy if they include your business’ branding design. Add a simple company logo on the top portion of the invoice and it can make the document appear more credible.
3. Use an e-Invoicing System
Invoicing is already time-consuming enough. And if you add the calculation of sales and GST taxes into the mix, the task can quickly become more tiring. Prevent this additional workload to your employees by investing in an e-invoicing system.
According to a 2016 Billentis Report, e-invoicing is set to increase 10-20% per year.1 It is a good alternative to paper invoicing without losing all the functionality of the traditional invoicing method. What sets it apart is its built-in automatic tax calculator. This way, you do not have to manually solve the tax amount for each purchase order or business transaction.
4. Pick a Clean Invoice Format
Aside from making sure that all essential components of an invoice are included, the use of a clean and organized invoice layout is also necessary. Format your tax invoices in a way that it will be easy to read and decipher all information.
Aside from acting as a record of a customer’s purchases, you may also need these tax invoices when it comes to filing your tax returns. Use tables to organize information if you have to.
5. Don’t Forget to Include Different Payment Options
Most invoices act as the signal that you are requesting payment from a client or customer. Cut down on the invoice to payment time by including all possible payment options in your tax invoices. When customers and clients see all these options, it will be easier and quicker to receive payments through the channels that you have specified. This technique is best used when sending out e-invoices.