The order of the calculation matters
The order used here is the common one: add the charges, take off the discount, apply tax to the discounted amount, then subtract any deposit. A deposit is a payment rather than a discount, so it does not reduce the tax base. Applying them in the wrong order is a common cause of invoices that do not add up.
Some items may be taxed differently from others, such as labor and materials. In that case, calculate each group separately with the rate that applies to it. Your accountant or local tax authority can confirm how your sales should be treated.
The formulas
Subtotal
Subtotal = Quantity × Rate + Materials
Sales tax
Tax = (Subtotal − Discount) × Tax rate ÷ 100
Balance due
Balance = Subtotal − Discount + Tax − Deposit
Worked example
A contractor bills 30 hours at $80 plus $150 of materials, gives a 10% discount, applies a 7% sales tax rate as an illustration, and already holds a $500 deposit.
- Subtotal: 30 × $80 + $150 = $2,550.00.
- Discount: 10% = $255.00, leaving $2,295.
- Tax: $2,295 × 7% = $160.65.
- Total: $2,455.65. After the deposit, the balance due is $1,955.65.
What a clear invoice includes
- Your business name and contact details, along with the customer's
- A unique invoice number, the issue date and the due date
- A description of the work with quantities and rates
- Any discount, tax and deposit shown as separate lines
- Accepted payment methods and your late-payment terms
Frequently asked questions
Should the discount come before or after tax?
A discount you give is commonly applied before tax, which is what this calculator does. Rules can vary, so check your local requirements for unusual cases, such as manufacturer coupons.
Is a deposit taxed separately?
This calculator applies tax to the full discounted amount and treats the deposit as a payment. Some places tax deposits when they are received, so your invoicing may need to reflect that.
What sales tax rate should I use?
Whatever applies to your sale. Rates and rules differ by location and product, and they change, which is why this site does not supply them. Check with your tax authority or accountant.
Can I handle several rates or line items?
Enter one group at a time and add the results, or put your combined charges in the materials field. For repeated complex invoicing, dedicated invoicing software may be a better fit.