Exemptions to Form 720: A Detailed Explanation
Form 720 is also referred to as the Quarterly Federal Excise Tax Return and one of the several forms or reports that businesses in the United States have to prepare to report and pay excise taxes on specific goods and services. While most businesses are required to file this form, there are many exemptions that would relieve companies from the reporting of some activities or paying special taxes. It is of much importance for businesses to learn these exemptions for proper compliance against unwanted tax liabilities.
What is Form 720?
However, form 720 should be known before exemptions apply. A form 720 is a quarterly filing that reports excise taxes on such items as air transportation, fuel, heavy highway vehicles, indoor tanning services, and some forms of environmental taxes. Commonly, excise is levied upon particular goods or services, where one incurs such excise on behalf of a consumer, though the business or the provider is under the obligation to file the taxes with the IRS.
Excise Taxes Exemptions from Form 720 Filing
Not all businesses that issue some sort of excise tax must file Form 720. Various exemptions can apply depending on the kind of business, the kind of goods or services being sold, and what kind of excise tax is being applied. Some of the most common exemptions are as follows: The total liability for such small businesses makes them exempt from filing if the amount for any quarter is less than $2,500. Businesses such as this one can file Form 720 for a period but are at liberty not to file if their liability is less than $2,500; however, they should still keep proper records and present them to the IRS if such is requested. This is an exemption that will save small businesses from irrelevant paperwork when liability is too low during a period.
Exempt Sales of Taxable Goods
Sometimes a company sells goods otherwise subject to excise taxes, but the particular sales are exempt. Fuel sold to state or local governments, to any non-profit educational institution or organisation exempt from tax, and to certain persons not obligated to pay tax are examples. The businesses should keep records of these exempt sales. Failure to do so may result in a penalty.
Government and Non-Profit Organisations
Governments, some tax-exempt organisations, as well as accredited foreign ambassadors have generally been exempted from paying excise taxes on certain goods or services, including fuel and communications services. The excise tax is excluded from these entities, and the vendors that sell the goods or services to them are not required to account for the taxes on Form 720.
Refundable Exemptions
Some specific excise taxes are refundable under certain conditions. For instance, a company may claim for refund or exemption on goods that are to be exported if the goods subject to an excise tax are those that are to be exported. Similarly, businesses that utilise such taxed goods either for manufacturing purposes, sale, or even for any other exempt use may claim for refunds or diminution in their excise tax liability. Claims for refund are provided for on additional forms and filed with more paperworks usually through Form 8849.
Exempt Highway Vehicles
If ever one thinks of heavy highway vehicles, these fall under an excise tax to be submitted under Form 2290. Some vehicles used for off-road purposes, or those which may have fewer mileage covering less than 5,000 miles per year, are usually exempted from the said tax. Typically, those vehicles used only for agriculture or government purposes are exempted. These businesses should ensure that they qualify for exemption to avoid wasting much time and energy in paying off such a tax.
Air Transport Exemptions
Aerodynamics and other air transporters are subject to paying excises taxes on transporting passengers and cargo. The exemption, however, applies if the flight is for medical or humanitarian purposes, any government's operations, or transporting military personnel. These exemptions can be very effective in reducing the burden of taxes on airlines and other air businesses.
How to file Form 720 Exemption
However, if your business does qualify for an exemption on Form 720, then you are saddled with certain requirements and procedures in availing of it. Many businesses do have to account for extensive records to prove their exempt status. These could be exemption certificates, proof of sales to tax-exempt entities, and records showing mileage or use for exempt vehicles, among others. Failure to correctly document exemptions could lead to penalties or additional tax assessments.
Filing Exemptions
Companies, or any taxpayer for that matter, can only exercise an exemption if they properly make note of the exempt activity on Form 720 or use the appropriate refund forms, like Form 8849, to recover wrongfully paid taxes. This is best done by a professional tax consultant who can help them determine what forms to file and what supporting documentation needs to be in place.
Record-Keeping Requirements
While your business may be exempt from the tax, the IRS still demands proper bookkeeping. This will include invoices, contracts, and certificates to substantiate the type of transaction or any exemption by the buyer. The records must be preserved for a minimum period of four years, in case the IRS imposes an audit or requires further information.
To any business dealing with excise-taxable goods or services, understanding what Form 720 exemptions really entail will prove to be most beneficial. By knowing which exemptions apply, businesses can indeed reduce their tax burden without appearing to be non-compliant with the regulations of the federal government. Just make sure that these must be carried out strictly according to procedure, together with appropriate supporting documents that may be requested, to avoid incurring penalties while making sure that your business keeps on rolling. The better way forward is often to seek the professional service of a tax consultant in taking care of that complex business.