Filing excise tax is not easy since there are many different forms, deadlines, and rules that have to be complied with. Whether it be federal excise taxes for fuel, air transportation or other taxable goods and services, any omission, no matter how small will be costly in the form of penalties, interest or even slow processing. This article will point out the most common excise tax filing blunders and how to avoid them.
- Filing the Wrong Form
One of the most common errors when excise taxes are filed is the form number or type used. The IRS has several forms for different types of excise taxes, and using the incorrect one can create rejected forms or miscalculations.
How to Avoid:
Identify the Correct Form: Almost all types of excise taxes normally require the IRS Form 720. However, not all excise taxes are so simple. Some specific stated Forms are specifically for certain taxes. For example, the Heavy Vehicle Use Tax (HVTU) demands the application of Form 2290. Look back and check what IRS instructs in order to be sure that you are employing the right form in relation to your tax type.
Thoroughly Understand the Scope of Tax Categories: Different sections of Form 720 addresses a specific category for example, the transportation taxation section, the taxation on fuel, or environmental taxation. Be sure that you are filling the right sections depending on the nature of your business activities.
2. Overstating or Understating Amounts of Taxable Sales
Another common error is overstating tax-sheltered sales without backing all of them up. This may involve underreporting or overreporting due to miscalculation, interpretation of the exemption, or maintenance of the last records.
How to Fix:
Proper Documentation: Have a complete and accurate record of all taxable events for businesses such as purchases and sales. This will help in ensuring that one reports the right figures.
Seek Professional Help: In case of confusion on how to arrive at the taxable amounts it would be advisable to contact a tax expert or make use of tax programs that assist in preparing excise tax returns.
Assess Exemptions: It is important to note any retails excise tax exemption that might be applicable to the business. Ignoring relevant exemptions will cause loss through excess payment while abiding by all of them wrongly will lead to legal actions.
3. Unmet Requirements of Filing of tax Returns
Filing late is a common case and result into penalties and interest for the person filing taxes. The due date for excise tax returns is mostly quarterly and inopportune due dates may bring about operational strain in the company.
How to Avoid:
Know Your Deadlines: Depending on the operations, one time excise taxes collection take place on April 30, July 31, October 31 and January 31. Do not ignore these dates; schedule the filing of your taxes accordingly.
E-filing Options: The last penultimate way of filing tax is through e-filing. This can save you time and will help you submit your returns even at the last hour before the cut-off date
- Errors in Calculating Credits and Refunds
An excise tax may also qualify which some taxpayers are entitled to claiming or receiving a refund but when it comes to providing such information most errors could either means subtraction from it where it has been claimed.
How to Avoid:
Understand Credit Eligibility: General knowledge about the credits should start at the introduction of one’s business, more preferably during the planning stage. For ultimate horsepower, industry novices are encouraged to recognize various excise tax credits that may be obtained within the economy such as fuel tax credits and export horror story credits, amongst others.
Accurate Calculations: Attention needs to be very keen when it comes to the figuring out of proper tax credits as much as tax refunds are also put in consideration. Wrong claims may lead to the companies facing IRS audits or their tax refunds may be delayed.
- Failing to Report Taxable Activity
Various taxations activities are common in many organizations, and taxation practices are among them. For instance, by engaging in trucking and air transport, in some cases, a firm may inadvertently lack extending reporting all tax activities accurately.
How to Avoid:
Review All Operations: Review all aspects of the business so as to determine any excise tax liabilities if they exist. Make sure that, all relevant taxable activities are reported.
Categorize Income Correctly: Income arising from different business activities may be subjected to different levies. Pay attention to how the income is handled to avoid situations where certain taxable items, in this case, income, are not reported.
- Incorrect Payment of Taxes
Occasionally, businesses will commit an error when making tax payments and pay the wrong amount of taxes. One of such errors is paying little tax which attracts penalties or even overpaying taxes and locking up money.
How to Avoid:
Double-Check Your Figures: Also before the filing of this excise tax payment, it is essential to make all rounded figures accurately.
Pay Electronically: The IRS has made it clear that e-payment of excise taxes is preferred over the traditional payment methods. Payments done electronically are usually done faster with less errors compared to mailing checks.
- Ignoring State and Local Excise Tax
The administration of federal excise taxes is within the jurisdiction of the IRS but in this regard, several businesses forget about state and local excise taxes which differ in administration, taxation, and filing aspects.
The following are those that you must not practice:
How to Avoid:
Know Your Local Laws: Apart from paying the federal excise taxes, you will be required to pay state and local excise taxes. You may wish to familiarize yourself with any such specific state or regional excise taxes.
- Separate Federal and State Filings: This practice should be avoided; there should be no overlapping between submissions made for federal excise tax returns and any other returns made to state and local governments.
- Not Amending Old Returns
In the event that an error was found after filing an excise return and corrected, one practice that should be developed is the filing of an amended return. And if that fails, all types of drawbacks would follow including penalties, interest, and even an auditor showing up at your door.
How to Avoid:
File an Amended Return Promptly: There is an amendment of your return that corrects beforehand what you believe is an error in your latest amended return concerning the last tax filing period. Immediately don’t just wait for the IRS to pinpoint that problem.
- Consult a Professional: Complex cases of errors such as this one might require expert assistance to make sure that the problem is solved correctly and to avoid risking unnecessary problems again.
- Tax Evasion via Wrong Claims on Tax Exemptions
There are some people who make a wrong tax exemption claim without knowing the rules required. This may lead to penalties in case the IRS through its’ investigations finds out that the exemptions were not valid.
How to Avoid:
Thorough Understanding of Exemption Rules: Be sure that you do everything possible that would last before you can even apply for the exemption in taxation. Some sectors e.g. non-profit organizations or certain fuel consumers can get tax exemptions though strict conditions apply.
Keep Documentation: It is very important to keep all original documents of taxes claimed on exemption if an auditor from the IRS requests it later because of an audit.
Paying excise taxes doesn’t have to be complicated if one understands and avoids the usual blunders. Knowing which forms to fill out, filing of documents, and observance of timelines are significant measures in ensuring that the taxes are filed as required. If you experience difficulties with any step in this process, it is advisable to hire an expert or employ dedicated tax software in order to avoid unintended consequences. Attention to detail may assist you in making the filing process more efficient thus minimizing the chances of unnecessary penalties or delays.