Filing federal taxes can be very complicated especially when it comes to specific obligations, including federal excise tax. In fact, most businesses are mandated to file their quarterly federal excise tax returns on a period basis as they report and pay different taxes on some goods and services. Internalizing the process, key forms, and compliance requirements may help businesses steer clear of some penalties and simplify their tax burden. Here’s everything you need to know about filing quarterly excise tax returns:.
What is Federal Excise Tax?
Excise tax is one of the taxes on sales levied on certain goods, services, and activities. Unlike income tax, excise taxes are usually imposed directly on producers, manufacturers, or importers who then pass down tax costs onto consumers in a final selling price of a product. Among the common things that usually come under excise tax are gasoline, alcohol, tobacco, firearms, and some luxury items, as well as services such as air transportation and communication.
Businesses are required to file their federal excise tax returns quarterly. This means submitting and paying excise taxes to the IRS on a quarterly basis. The filing of correct forms within the correct time frame is the essence of maintaining federal compliance.
Who Has to File Quarterly Federal Excise Tax Returns?
Not all businesses have to pay excise taxes, but when they do, then they have to file the quarterly excise tax return. Most businesses that manufacture, produce, sell items taxable under the excise tax, or deliver excise-taxable services have to file Form 720 – the “Quarterly Federal Excise Tax Return.” This is a common form for the liability taxes payable for lots of products and services.
Consider the following: Commonly, excise tax returns are filed by the following kinds of industries.
Transportation firms typically pay federal excise taxes for both air transportation and fuel use. Manufacturers and sellers of alcoholic beverages, tobacco, and firearms are taxed by virtue of specific excise tax rules. Telecommunications firms normally pay excise taxes on certain communication services, including long-distance telephone service.
- Heavy truck and trailer retailers: The sale of heavy vehicles also has excise tax liability.
If your business falls under any of these, you most likely must file Form 720 each quarter.
Important Information About Form 720
Form 720 is the statutory form of the IRS for reporting excise tax liabilities. It has fields for many excisable products and services, thus making it a catch-all for multiple types of businesses. The form is filed on a quarterly basis; the due dates are as follows:
- 1st Quarter: January 1 through March 31, due April 30
- 2nd Quarter: April 1 through June 30, due July 31.
- 3rd Quarter: July 1 to September 30, due October 31.
- 4th Quarter: October 1 to December 31, due January 31 of the next year.
The Form 720 filing is strictly done in the right form and also submitted well in time to avoid penalties or accumulation of interest with the IRS. This will cost more when it has passed the due date, so mark your calendar and be ready with your returns way before submission.
How to File Your Quarterly Federal Excise Tax Returns
- Compile Relevant Information
Prior to Form 720 submittal, one should gather all information that was supposed to be accounted for during the quarter. These can include records of goods or services sold, tax rates applicable on those products, and all the exemptions or credits which might apply. The more comprehensive and precise the information is, the easier the submittal process will be with fewer errors. - Complete Form 720
The Form 720 includes several sections, depending on the type of excise tax the return is filed for. Fill only those sections relevant to your business activities. The form is categorized into sections, including: - Category
Section I: General Excise Taxes Category
Section II: Environmental Taxes File all applicable information related to sales reports and tax amounts imposed. The IRS has provided tax tables which can be employed to calculate the excise tax precisely.
3. File for Credits and Refunds
If you paid too much excise in any of the quarters or even if you have some tax credit, you can claim them in the quarterly filing. Schedule C of Form 720 enables a business to claim a credit or a refund, perhaps for gasoline used for off-highway use, or for destroyed goods that were taxed though they never hit the sale floor.
Once you have filled out Form 720, you can submit it either by mail or electronically using the IRS’s e-file system. In addition to this, you have to remit the quarterly excise tax, while submitting the form. There are several methods through which you can make tax payments accepted by the IRS and these include electronic funds withdrawal, credit card, or check.
That is, you must make the filing and pay by the deadline to avoid late penalties. If you’re not able to pay on time, the IRS does have payment plans, but there most likely will still be late charges.
Filing Quarters Late
You’ll be facing rather hefty penalties and interest charges if you do not file your quarterly federal excise tax return by its deadline. The IRS imposes a **failure-to-file penalty, **which can go up to 5% per month of unpaid tax for each month that the return is late, up to a maximum of 25%. A failure-to-pay penalty also accrues at 0.5% per month of unpaid tax. Interest on unpaid tax is daily, so this is best dealt with promptly.
If penalties are avoided, one should file and pay on time. One can ease the consequence of the deadline by filing for an extension or paying in installments if such a situation does arise with the business.
Rewards of being compliant
Although it saves penalties, complying with quarterly excise tax return can be advantageous for your business in the long run. Compliance helps keep the reputation of the business in place and brings substantial savings as one need not face audits or legal issues. You will get a clear picture of your company’s financial health if you maintain updated records and file correct returns that reflect regularly. Furthermore, credits and refunds may occur where applicable, and this helps to reduce the overall tax burden that leads to higher profitability.
Quarterly federal excise tax returns can appear to be quite a complex matter; but if you are aware of the process and requirements, you can confidently deal with this responsibility. Be it transportation, alcohol, fuel, or other excise-taxable goods and services that your business operates in, being in control of Form 720 filings has to be done. Thus, keeping proper records, making on-time filings, and finding all the credit applicable will make your business stay compliant without paying any costly penalties.