Introduction
Firearms manufacturers, importers, and dealers in the United States are under a myriad of tax regulations by the Internal Revenue Service. Among these critical obligations is the payment of the Federal Firearms and Ammunition Excise Tax (FAET). This tax needs to be reported on Form 720, a quarterly excise tax return which includes tax returns on firearms and ammunition as well. Most businesses through digital solutions, have also adopted online filing as means of simplifying their procedure in tax compliance. For this article, we explain the basics of the firearms excise tax, as well as reporting requirements how to file effectively on an online Form 720.
What is the Firearms Excise Tax?
A federal excise tax on manufacturers, producers, and importers of firearms and ammunition, applied on the sale of pistols, revolvers, rifles, shotguns, and ammunition in the United States. The collected FAET revenue is mainly channeled to fund wildlife conservation and related activities through the Wildlife Restoration Act.
Here is a summary of the tax rates applicable on the sale of each commodity:
Pistols and Revolvers: 10% of selling price
Other Fire Arms (rifle shotguns): 11% of selling price
Ammunitions (shells and Cartridges): 11% of selling price
Who Must File Form 720?
Any commercial enterprise that manufactures, assembles, or imports firearm and ammunition must file a Form 720 to collect and pay their FAET. This includes:
Licensed Firearms Manufacturers: If you manufacture firearms or ammunition for sale.
Firearms Importers: If you import firearms or ammunition from overseas for commercial purposes.
Non-Licensed Firearms Producers: In some cases, assembling or producing firearms for the purpose of sale also brought individuals under FAET obligation.
Note: Record keeping of sales, prices, and amounts of firearms and ammunition should be comprehensive to ensure accuracy in reporting taxes.
Filing Form 720 Online: Step-by-Step Instruction
The IRS actually encourages the electronic filing of Form 720. Such a filing takes lesser time and also has lesser errors. The submission will also take less time since business people save their precious time. This is the step-by-step instruction in filling up the Form 720 online.
Create an IRS Account or Choose a Third-Party Provider
Delineate which e-file program to use, either IRS e-file or a third party authorized e-file provider for Form 720. Most third-party providers offer many more features, including calculation for automatically filled-in values as well as error checks that are highly useful to users. Yet, they do not have to pay anything to access the IRS e-file.
Gather Necessary Information
Prior to beginning the e-file procedure, the following information has to be collected:
EIN (Employer Identification Number)
Sales report of ammunition and arms
Taxes to be paid in arrears, based on tax rates.
Payments made within the reporting quarter.
Now that your data is ready, join your chosen e-file and locate the form. Form 720 is a bit separated into parts, actually; it has different varieties of excise taxes covered under it. For armaments and ammunition, in this case, you just worry about Part I; but within the section including arms and ammunition.
Compute Your Excise Tax Liability
Use the sales data to calculate your total tax liability. Remember that the various types of firearms are subject to different tax rates; thus, these calculations have to be accurate. There are calculators on many online platforms that help reduce errors, especially for first-time filers.
Pay the Excise Tax
Most electronic systems have automatic payment provisions directly associated with the filing process. Businesses can make payments through EFTPS directly on an IRS account for excise tax liability. Make sure you have accurate information in your payment and submission process to avoid delayed delivery.
Review and submit your form
Before submitting Form 720, verify that all entries are correct. Ensure that the total amount of tax payable is correctly reflected in your records, and that you have filled in all parts of the form that must be filled in. Only after you’ve ensured that all information contained in the form is accurate should you e-file.
Keep a Copy for Your Records
Once you have filed Form 720, make sure to save a copy of the form and the payment receipt for your records. These documents are useful in case of an IRS audit or discrepancy in the future.
Benefits of Online Filing of Form 720
Online filing of Form 720 has many benefits over paper filing. Some of the key benefits include:
Time-Saving: Filing is faster and more efficient. You save time from the paperwork.
Error-Reduction: Online filing websites have features that automatically check for errors in the computation and entries of data.
Instant Confirmation: Once you file online, you will get an immediate confirmation of submission and payment.
Improved Security: The IRS or a licensed provider ensures security and confidentiality of your business data through online filing.
Common Mistakes to Avoid When Filing Form 720 FAET
Some businesses that submit Form 720 for FAET commit errors that will be penalized or delayed. Some of the common mistakes are:
Incorrect Sales Data: Ensure you obtain the correct figures and tax rates.
Wrong EIN: Ensure that you enter the correct Employer Identification Number on all forms.
Late Submissions: Form 720 is submitted quarterly by the last day of the month following each quarter. Submission after due date may attract penalties.
Incorrect Application of Tax Rate: The wrong tax rate applied to some firearms may result in either lesser or extra tax payments.
All business entities in the firearms industry are supposed to file form 720 for the firearms excise tax. Thus, it is imperative that one understands the tax requirement, gets all the relevant information, and uses an online filing system to have an easy time in your compliance process, thus decreasing the risk of errors during compliance. It is good to file promptly and also maintain records for future references so that the operations will run smoothly and compliant in the business.
Whether you’re a manufacturer, importer, or producer of firearms, it’s essential to always be aware of your obligations under the FAET and avoid being penalized in order not to lose a business. Take advantage of online filing methods to ensure efficient and accurate filing so you can focus more on your business rather than paperwork.