What is a tax invoice, and how do you create one?

Learn how to use and create a tax invoice to list the taxes paid so that you can claim deductions at fiscal year-end.

Tax invoices are different from standard invoices or receipts. An invoice requests payment from a customer, a receipt proves payment, and a tax invoice shows the amount of tax payable from a transaction. Let’s dive deeper into the questions of what a tax invoice is, when one is used, and how to create one.

What is a tax invoice?

A tax invoice is a document that shows the amount of tax payable that is on a transaction. Tax invoices are sent by a registered dealer to a purchaser to show evidence of a trade and back a buyer’s claim of an input tax credit.

How is a tax invoice used?

Companies and tax-registered customers claim tax credits on purchases. Of course, the government isn’t going to just hand out tax credits without proof, so tax invoices show that customers and businesses paid their taxes on a purchase and can now legally claim credits.

Specifically, tax invoices are used for the following reasons:

• Accounting. Tax invoices are used for record-keeping to store transaction information, including any discounts or price adjustments.
• Taxation. These invoices are used to determine and report the tax owed by the seller or buyer.
• Auditing. With tax invoices, tax authorities can confirm they are in compliance with laws and track potential errors or fraud.
• Legal compliance. Tax invoices are mandated in some countries to back a buyer’s claims of an input tax credit.
• Business operations. Tax invoices are used to track sales, manage inventory, monitor cash flow, and show a record of goods and services sold.

Now that you know how a tax invoice is used, let’s dive into what information you should include in one.

What information should be included in tax invoices?

If you need to write an invoice that shows all taxes on a purchase, there are certain pieces of information to include, such as:

• The words “tax invoice”
• Invoice date and number
• Customer name
• Billing and shipping address
• Seller business number and identity
• Description of the goods and services rendered, along with the quantities and price
• Tax applied to each item
• Total taxes
• Supplier signature

Since tax invoices are submitted to the government, it’s important that all essential information be included. Otherwise, you or your customers might not be able to claim the tax credits due.

How to create a tax invoice.

Tax invoices look very similar to regular invoices, except they put an emphasis on the taxes. They must also be clearly labeled as a tax invoice — typically in large bold letters at the top. You can build tax invoices from scratch, but it’s much easier to download a template online.

When are you required to make a tax invoice?

Tax invoice requirements vary by country and industry, so check with local requirements to ensure you are in compliance with the latest regulations.

Some of the most common purposes for using a tax invoice include the following:

• To display items on an invoice that are taxable and ones that exclude tax (if applicable)
• To confirm that your business is permitted to collect tax on transactions
• To decide the accounting period in which tax should be accounted for (monthly, quarterly, annually)

How long should you keep tax invoices?

Most of the time, you should keep tax invoices for at least three years, as that’s the time frame the IRS has to decide whether or not to audit your invoice. Regardless of how long you’re required to keep them, it’s helpful to learn how to organize tax documents so they’re easily accessible in the future.

Simplify tax invoice PDFs with e-signature tools.

Since all tax invoices need a signature, using e-signature software like Adobe Acrobat can make the process much simpler. That way, you can create, sign, and send invoices without fighting with printers, scanners, or fax machines.

Learn more about how Acrobat can simplify the process of authorizing and sending tax invoices.