Tax Reconciliation
Tax reconciliation matches tax collected on transactions with tax payable accounts, identifying and resolving discrepancies. This guide covers reconciliation processes and tools.
Overview
Tax reconciliation enables you to:
- Match collected vs payable
- Identify discrepancies
- Resolve differences
- Prepare for filing
- Support audits
- Ensure accuracy
Accessing Reconciliation
Navigate to Tax Management → Tax Reconciliation to perform reconciliations.
Understanding Reconciliation
Reconciliation Types
| Type | Description |
|---|---|
| Period-End | Monthly/quarterly close |
| Pre-Filing | Before tax return |
| Audit | For examination |
| Ongoing | Continuous monitoring |
Reconciliation Status
| Status | Description |
|---|---|
| Open | In progress |
| Reconciled | Balanced |
| Variance | Has differences |
| Reviewed | Management approved |
| Closed | Finalized |
Common Discrepancies
| Issue | Cause |
|---|---|
| Timing | Different posting dates |
| Rounding | Calculation differences |
| Adjustments | Unrecorded adjustments |
| Exemptions | Incorrect exemption |
| Rate | Wrong rate applied |
How-To Guides
How to Perform Period Reconciliation
Reconciliation Process
- Go to Tax Reconciliation
- Select period and jurisdiction
- Run reconciliation
- Review differences
- Investigate variances
- Make adjustments
- Complete reconciliation
Reconciliation Summary
Tax Reconciliation - January 2026
Jurisdiction: California
Summary:
┌────────────────────────────────────────────────────────────┐
│ Tax Collected (per Invoices): $67,456.89 │
│ Tax Payable (per GL): $67,423.45 │
│ ────────── │
│ Variance: $33.44 │
└────────────────────────────────────────────────────────────┘
Variance Analysis:
├─ Rounding Differences: $12.34
├─ Credit Memo Timing: $21.10
├─ Unexplained: $0.00
└─ Total Explained: $33.44
Status: Reconciled ✓
Reconciled By: J. Smith
Date: Feb 3, 2026How to Identify Discrepancies
Discrepancy Report
Discrepancy Detail - January 2026
By Category:
┌────────────────────────────────────────────────────────────┐
│ Category │ Count │ Amount │ Status │
├────────────────────────────────────────────────────────────┤
│ Rounding │ 45 │ $12.34 │ Auto-adjusted │
│ Timing │ 3 │ $21.10 │ Explained │
│ Rate Difference │ 0 │ $0.00 │ - │
│ Exemption Error │ 0 │ $0.00 │ - │
│ Unexplained │ 0 │ $0.00 │ - │
└────────────────────────────────────────────────────────────┘
Detail - Timing Differences:
├─ CM-0045: $8.50 - Credit issued Jan 31, posted Feb 1
├─ CM-0046: $6.80 - Credit issued Jan 30, posted Feb 1
└─ CM-0047: $5.80 - Credit issued Jan 31, posted Feb 2How to Resolve Variances
Variance Resolution
- Identify variance
- Investigate cause:
- Review transactions
- Check timing
- Verify rates
- Check exemptions
- Document finding
- Make adjustment if needed
- Record resolution
Resolution Workflow
Variance Resolution: Invoice INV-0567
Variance: $8.50 (tax collected vs GL)
Investigation:
├─ Invoice Date: Jan 28, 2026
├─ Invoice Tax: $85.00
├─ GL Tax Posted: $76.50
├─ Difference: $8.50
Root Cause:
├─ Credit memo CM-0045 issued Jan 31
├─ Posted to GL: Feb 1 (next period)
└─ Timing difference
Resolution:
├─ Type: Timing - will clear next period
├─ Action: No adjustment needed
├─ Document: Added to reconciliation notes
└─ Status: Explained
Approved By: Controller
Date: Feb 3, 2026How to Match Transactions
Transaction Matching
Transaction Matching - California Tax
Invoices (Tax Collected):
┌──────────────────────────────────────────────────────────────┐
│ Invoice │ Date │ Tax Amount │ GL Entry │ Matched │
├──────────────────────────────────────────────────────────────┤
│ INV-0001 │ 01/02 │ $104.94 │ JE-0102 │ ✓ │
│ INV-0002 │ 01/02 │ $0.00 │ - │ ✓ (exempt) │
│ INV-0003 │ 01/03 │ $199.38 │ JE-0103 │ ✓ │
│ INV-0004 │ 01/05 │ $85.67 │ JE-0105 │ ✓ │
│ INV-0005 │ 01/05 │ $156.23 │ JE-0105 │ ✓ │
└──────────────────────────────────────────────────────────────┘
Unmatched Items:
├─ None
GL Entries (Tax Payable):
├─ All matched to invoices ✓How to Prepare Pre-Filing Reconciliation
Pre-Filing Checklist
Pre-Filing Reconciliation - California Q4 2025
Reconciliation Steps:
- [x] Generate Q4 sales tax report
- [x] Pull GL tax payable balance
- [x] Compare report to GL
- [x] Identify all differences
- [x] Resolve or explain variances
- [x] Document exemptions
- [x] Verify rate accuracy
- [x] Management review
- [x] Sign-off obtained
Summary:
├─ Report Total: $234,567.89
├─ GL Balance: $234,567.89
├─ Variance: $0.00
└─ Status: Ready to file
Approvals:
├─ Prepared: Tax Accountant (Jan 15)
├─ Reviewed: Tax Manager (Jan 18)
└─ Approved: Controller (Jan 20)How to Handle Adjustments
Adjustment Entry
- Identify adjustment needed
- Calculate amount
- Create adjustment entry
- Post to GL
- Document reason
- Update reconciliation
Adjustment Types
Tax Adjustments - January 2026
Adjustment Categories:
├─ Rounding: Auto-adjusted monthly
├─ Audit Adjustment: Per state notice
├─ Rate Correction: Fix incorrect rate
├─ Exemption Correction: Fix wrong exemption
└─ Write-off: Uncollectible tax
Example Adjustment:
┌────────────────────────────────────────────────────────────┐
│ Journal Entry: TAX-ADJ-2026-001 │
│ Date: Jan 31, 2026 │
│ Description: Rounding adjustment for January │
│ │
│ Debit: Tax Expense (6210) $12.34 │
│ Credit: Sales Tax Payable (2100) $12.34 │
│ │
│ Reason: Monthly rounding differences │
│ Approved: Controller │
└────────────────────────────────────────────────────────────┘How to Generate Reconciliation Report
Reconciliation Report
Tax Reconciliation Report - January 2026
Executive Summary:
├─ Jurisdictions Reconciled: 4
├─ Total Tax Collected: $189,456.78
├─ Total Tax Payable: $189,423.34
├─ Net Variance: $33.44 (0.02%)
└─ Status: All Reconciled
By Jurisdiction:
┌────────────────────────────────────────────────────────────┐
│ Jurisdiction │ Collected │ Payable │ Variance │
├────────────────────────────────────────────────────────────┤
│ California │ $67,456.89 │ $67,423.45 │ $33.44 │
│ Texas │ $54,321.00 │ $54,321.00 │ $0.00 │
│ New York │ $45,678.89 │ $45,678.89 │ $0.00 │
│ Florida │ $22,000.00 │ $22,000.00 │ $0.00 │
└────────────────────────────────────────────────────────────┘
Variance Explanation:
├─ Rounding: $12.34
├─ Timing: $21.10
└─ Total: $33.44 (all explained)Advanced Features
Automated Reconciliation
System matching:
- Auto-match transactions
- Flag exceptions
- Suggest resolutions
- Track progress
Continuous Monitoring
Real-time tracking:
- Daily reconciliation
- Variance alerts
- Trend analysis
- Proactive resolution
Multi-Entity
Consolidated reconciliation:
- Entity-level detail
- Consolidated view
- Intercompany handling
- Group reporting
Audit Support
Examination tools:
- Complete history
- Supporting documents
- Resolution trail
- Communication log
Best Practices
Timing
- Reconcile promptly
- Don't wait for close
- Regular schedule
- Early identification
Documentation
- Document everything
- Clear explanations
- Keep evidence
- Audit trail
Review Process
- Multi-level review
- Segregation of duties
- Management approval
- Sign-off documented
Resolution
- Investigate fully
- Root cause analysis
- Prevent recurrence
- Follow up
Configuration
Reconciliation Settings
Navigate to Settings → Tax → Reconciliation:
- Tolerance - Variance threshold
- Auto-Match - Matching rules
- Workflow - Approval process
- Retention - History retention
Alert Settings
- Variance Alerts - Notification thresholds
- Deadline Alerts - Reconciliation due dates
- Exception Alerts - Unmatched items
- Approval Alerts - Pending approvals
Troubleshooting
Common Issues
Large unexplained variance
- Check for missing transactions
- Review rate changes
- Verify exemptions
- Check adjustments
Transactions won't match
- Check dates
- Verify amounts
- Review GL entries
- Manual matching
Cannot close reconciliation
- Resolve all variances
- Obtain approvals
- Complete documentation
- Check workflow
Historical difference
- Review prior periods
- Check adjustments
- Verify carryforward
- Document finding
Related Documentation
Return to Tax Management Overview to explore all tax features.