In most instances, small businesses will find that dominion over federal taxes is the key to remaining compliant with relevant laws while at the same time preventing dangerous domestic or international fines. Among the various forms and regulations that business owners undergo, IRS Form 720 is notable especially for those that deal in certain goods, services, or industries that are subjected to excise taxes. Excise tax is perceived to be more of a corporation’s tax, however, many small businesses are exactly in a position to file form 720 to the requirements of IRS.
This will explain what is Form 720, who is required to file it and how the filing process works to ensure that your small business is ready in regards to excise taxation.
What is Form 720?
Form 720 is also referred to as quarterly federal excise tax return that allows submission of quarterly and annual report of excise tax to IRS. Excise tax is a tax on specific products, activities and services and is different from income tax. The taxation is done by the government in order to earn revenue as well as sometimes to control certain industries such as Tobacco, Alcohol, Fuel and some chemical industries which are of public concern or environmentally detrimental.
All entities engaged in the business of selling or making products such as gasoline, diesel fuel, or offering air transport services will be required to make use of Form 720. Other taxes such as environmental taxes, taxes on certain luxury items and some taxes related to health insurance also come under the category of excise tax.
Who Must Submit Form 720?
Small companies that trade in goods or render services which are covered by certain federal excise taxes are required to submit Form 720. Some examples of the industries and activities for which typically Form 720 is filed include:
Fuel Sales and Distribution: It covers every entity that manufactures, imports or sales fuel products like gasoline or diesel.
Tobacco and Alcohol: The excise taxes on tobacco and alcohol products are imposed on the producers and importers of such consumables.
Air Transportation Services: With regards to air transportation whether of goods or people there are excise taxes which need to be filed.
Manufacturing Certain Chemicals: Companies whose operations are related to the manufacturing of special chemicals and materials really need to undertake excise tax registration.
Indoor Tanning Services: Small companies providing tanning services or indoor tanning salons are subject to taxes on excise, owing to the enforcement of the Affordable Care Act, ACA tax.
It should be emphasized that even if you may be certain that excise taxes are not levied on your small business, it is always essential to check with IRS policies or seek the advice of a tax specialist. All these will create additional excise tax obligations resulting in penalties, back taxes, and even interest costs.
Key Components of the Filing Form 720
Preparing and submitting the 720 tax return may seem complicated if you are not acquainted with excise taxes. Nonetheless, organizations are known to segment this procedure into simpler parts making it convenient.
- Identifying the Taxable Items
You will need to ascertain which of the excise taxes concern your business before you can proceed to file. The form is segmental and each contains details about specific kinds of excise tax like fuel tax, communication services tax, environment tax, and health concerning products sectors among others. Go through the instructions and find out which parts apply to your business.
- Filing of Form 720 Deadlines
This form should be filed on a quarterly basis, and the reporting year has defined quarters for filing. The deadlines are listed in the bulleted points below:
April 30 for first quarter (January – March).
July 31 for second-quarter filing (April – June).
October 31 filing of the third quarter (July – September).
January 31 for quarters of October – December.
Take note of these due dates as their absence may attract some penalties due to non-compliance and to ensure that you do not miss out on them or the quarterly submission deadlines.
- Filing out Taxes with E-filing
The IRS would like businesses to file Form 720 through one of the IRS e-file service providers. It’s easy, safe and usually more efficient to file your taxes electronically. Moreover, it allows you to track your return history and help you satisfy the tax due on time without delays because of the mail.
In the case of small business concerns, the e-filing of Form 720 is useful as it curtails the amount of paper used and reduces chances of making mistakes. E-filing of taxes is encouraged since many tax practitioners and tax software prepare e-filing returns for business operators.
- Record Keeping
When working on Form 720, it is critical to have records that are in order. You will need records of tax involved transactions, receipts, invoices, lot’s of subsidiary papers and documents related to excise tax responsibilities. Such papers should not be in existence for less than four years since the IRS may ask for them to ascertain the values they have seen reported.
It goes without saying that efficient record-keeping makes it possible not only to meet the set requirements, but also to capture any opportunity that relates to tax deductions or credits related to excise tax. Maintaining accurate and orderly books in an organization saves a lot of time during the tax season and brings extra value as it reflects the status of the organization.
- Mode Of Payment For Tax
In addition, when submitting Form 720, you are required to make payment for the excise tax owed. As for the IRS, there are different ways through which it is possible to make payments, namely electronic funds withdrawal EFTPS, credit card or debit card payments or payments through checks in the mail. Electronic payment methods also function to help eliminate unnecessary delays in the payment process.
Errors Made When Filing Form720 And How to Avoid Them
Penalties, submission of tax returns within a certain period after the last day of the prescribed time frame, or even worse, some complications with the FTA request when there are small errors while filing Form 720, are all possibilities. Here are some of the common errors which may be avoided:
Missing Deadlines: For no late filing penalties, make sure you submit form 720 returns on the quarterly basis, even if there is no taxable activity.
Inaccurate details: Ensure that you’ve done all the necessary subdividing and logical addition that is needed so that correct figures are availed for instances of each tax line.
Failure To Include Revenue From Taxable Transactions: It is important that all taxable activities or products are accounted for to prevent underreporting revenue from taxable activities.
Poor Record-keeping: As such, appropriate documentation is needed addressing your excise tax maters to the IRS.
Why Should Small Businesses Drive All The Way to File a Form 720
Despite excise taxes appearing as an additional rope, adhering to Form 720 tax obligations can prove to be useful in the long run strategies for small businesses. As far as excise taxes compliance is concerned, you enhance the confidence of the IRS in your working by reporting honestly and lessen the risk of being audited or penalized. Furthermore, consider filing your taxes to the best of your ability to avoid cash flow problems and inappropriate budgets that include needless expenditures.
Depending on the circumstances, they may also qualify for the credits or tax reimbursements that are referred to as excise tax credits. If you have paid too much sales tax on an excise tax or have been eligible for an exemption, you may recover the overpayment by filing IRS Form 8849 in addition to 720. These exemptions help the growth of your business in terms of financial management.
When small business owners have to deal with excise taxes, it is important to know the basics of Form 720. If you work with e.g. fuel, provide air transport or indoor tan service, knowing how to work with this form helps you prevent infractions, remain in tax compliance and keep the operations unhindered.
Delays in filing, paper filing, and poor record keeping always translate to extra cost of compliance and can give any small business owner nightmares with respect to excise tax. It is worth reiterating that whether a small business or a large, effort should be given in understanding how tax matters have to be organized so that getting behind is not a habit.