In taxes for specific products and services, most businesses encounter excise taxes. Of these, there are luxury taxes, which are classified under special excise taxes, and should be filed with the use of Form 720. Form 720 handles a wide number of excise taxes, which includes luxury goods, and filing it online will save you much hassle in the compliance process. Whether it is a high end goods dealing business or exclusive services, mastering this tax form would prevent penalties and keep you in good books with the IRS.
In this all-inclusive guide, we will take you through the nitty-gritty of luxury tax filing using Form 720, explain why it matters, and the ease of e-filing it.
What is Luxury Tax?
Luxury taxes apply to items or services that fall within the non-essential or high-value categories. Examples of these include luxury cars, jewelry, furs, and some recreational services, among others. This tax is reportedly to collect revenue from extravagant goods and services. The people who would be taxed would typically be high-end consumers, and companies dealing with or manufacturing such products collect and pay the tax to the IRS.
Federal excise taxes are the general category of luxury taxes. All federal excise taxes must be reported on Form 720, the Quarterly Federal Excise Tax Return.
Understanding Form 720
Form 720 is the IRS form reporting various excise taxes. Included in this form is a luxury tax. The form handles excise taxes on the likes of air transportation, fuel, indoor tanning services, heavy vehicles, and other areas. The form could look very complicated as it covers many areas, but most businesses are concerned only with a few areas handling their industry.
If you sell or make luxury goods or services, you will have to determine which part of Form 720 your tax obligation falls under. Failing to file or underreporting could attract a penalty, interest, or other issues.
Major Parts of Form 720
There are multiple sections to Form 720, and the luxury tax is going to be found within one of those categories. Depending on the nature of the luxury goods or services you have, you are going to focus in on relevant parts. Looking at the form, the items that you will want to review include:
- Section 1: Most of the excise taxes in this section include communications and air transportation taxes.
- Part 2: Information of other types, which include environment taxes and those that fall for special fuels and special activities
Luxury taxes involving a product or service would largely fall in these parts. To account for the correct tax liability of luxury, form 720 should be filled-up accurately.
Benefits of Form 720 Online Filing
The filing of paper is really slow and delay-prone. Fortunately, the Internal Revenue Service allows you to e-file Form 720. This saves much hassle in the whole process with much efficiency. Some essential advantages of submitting Form 720 online include:
- Convenience, Time-Saving: By e-filing, one can submit taxes from home or office without the trouble of printing, mailing and tracking the paperwork, making it much faster in form processing.
- Accuracy and Verification: Software used in filing the tax most of the time, provided by the IRS, will do error checking. Such can help pick up most of the common mistakes before filing occurs, lowering the likelihood that the application will be turned down or penalties imposed.
- Confirmation Almost Instantaneous: While with a paper-based filing process, a confirmation usually takes weeks before it could be obtained; e-filing ensures this is obtained almost instantly as soon as the return was submitted, giving an ease of mind.
- Easy Payment Options: With e-filing, it is easy to remit any tax due as this can be done directly using the electronic funds withdrawal mechanism among other options available. That leaves out the hassle and headache of mailing checks as well as processing delays associated with traditional filing.
E-File Luxury Tax Form 720
E-filing Form 720 takes one through a few rather simplified procedures. Let’s look through the process:
Step 1: Retrieve Relevant Information
Before filing, you should have all the information and documentation regarding the luxury goods or services sold. These include sales amount, applicable excise tax rates, and payment details. Your Employer Identification Number, along with other relevant business information, will also come in handy.
Step 2: Gather Relevant Information About Luxury Goods Sold
Make sure to prepare a summary of the following:
Details of the luxury goods or services sold
Total sales
Applicable excise tax rates
Payment information
Your Employer Identification Number and other relevant business information
You can submit your Form 720 through an e-file by logging into any of the authorized electronic filing providers maintained by the IRS. Using an efficient e-filing service offers a guarantee of safety, precision, and punctuality in submitting your Form 720. Each provider has unique features. Take some time and learn each feature of every provider then pick one that fits best.
Step 3: e-file Form 720 End
Once you settle on the service provider, you will then follow the instructions given to ensure you fill Form 720 the right way. At this juncture, you should:
- Fill the relevant parts of the form using the appropriate information about business and luxury tax.
- Make sure that all items added and calculated are accurate so that you do not incur delays.
Caution: The e-filing service will only guide you on filling in what is mandatory. This avoids missing any information that you might need to fill in the form.
Step 4: Verify and Submit
Before you finalize it, verify that the form is correct. E-filing sites usually allow you to review and cross entries correctly to avoid any mistake. Once you are sure that everything is correct, you can submit the form electronically.
Step 5: Pay Any Tax Due
The due amount of luxury tax can be paid through the safe electronic payment options of the IRS. Some of the electronic payment options of the IRS include EFW, credit/debit card payments, and EFTPS.
Form 720 Due Dates
You are required to make a quarterly payment for luxury tax and filing the form 720. Some of the due dates to submit the return are as follows:
- First Quarter: April 30
- Second Quarter: July 31
- Third Quarter: October 31
- Fourth Quarter: January 31
Monitor these dates to prevent late filing charges and interest on penalties.
Avoidable Mistakes
In submitting the luxury tax via Form 720, the following common mistakes must be prevented:
- Misclassified Luxury Tax: The luxury tax is not applied on all goods or services of high value. Consult with IRS for correct classification.
- Underreporting or Overreporting Sales: Check your sales to confirm the numbers you are reporting to tax. Overreporting results in paying extra tax than one needs, and underreporting may attract penalties.
- Late Filings: Missed deadlines for submitting quarterly returns will cost money. Plan reminders or avail yourself of an e-filing service that has automatic reminder systems.
It is scary, of course, to fill out luxury taxes with form 720, but that’s not the case if you make it right. If they can e-file, this would make it possible for businesspeople to simplify their entire filing process, increase precision, and save valuable hours. If you pay particular attention to the steps it involves and do not repeat mistakes made by people just like you, you could be sure to comply while focusing on what matters – your business.
So, in cases where you trade in luxurious good or services, accept to file your returns on a computer and get ahead on your tax obligations using Form 720.