Manage Taxes on Deposits

In this FAQ, we cover the following topics:

A) Deposits

1. Non-taxable (refundable) deposit

2. Taxable (non-refundable) deposit

A) Deposits

When managing deposits, it is essential to distinguish between two types of deposits, which must be configured separately, with different GL accounts.

1. Non-taxable (Refundable) Deposit

This type of deposit corresponds to an amount held on behalf of the client, not to company revenue.

• Example: $100,000 estimate with a $20,000 deposit required pending a permit
• This deposit is refundable if the condition is not met
• It must be recorded in a liability account (client GL)
• The money belongs to the client until the transaction is completed

Conclusion: this is a non-taxable deposit, as this amount is not earned revenue.

2. Taxable (Non-refundable) Deposit

This deposit is considered a binding commercial transaction at the time it is collected.

• Example: $100,000 estimate with a $45,000 deposit once the permit is obtained
• The deposit is non-refundable
• It is used to place the order with the manufacturer
• It must be recorded in a revenue account (Sales GL)

Conclusion: this deposit is taxable, as it represents earned revenue and creates an obligation to provide a service or fulfill an order.

For information on deductibles, see the FAQ: Manage Taxes on Insurance Deductibles.