Form 720 Instructions: A Dedicated Guide to Filing Federal Excise Taxes
Federal excise taxes are a concept that one gets to hear within and around various businesses in the United States. There are three taxpayer types, which include corporations, partnerships, and sole proprietors. Filing Form 720 has been a vital document that aids a person in undergoing proper compliance with tax regulations. Form 720 is the form used to report and pay certain excise taxes on goods and services. Some of these items include air transportation, gasoline, vaccines, indoor tanning services, and so many more. We walk you through, step-by-step, how to file Form 720, and in this article, we let you know what is going on with deadlines and the variety of ways you may file. See below.
What is Form 720?
Form 720 is the Quarterly Federal Excise Tax Return, and the businesses file it in case excise taxes are owed. Excise taxes are levied on specific goods and services, or kinds of industries, often referred to as luxury or specialty items. Because excise taxes are not income taxes, their tax rates are usually levied at either the manufacturing or the sales level. Typical examples of commodities taxable under excise tax are gasoline, cigarettes, guns, and even tickets issued by airlines. Business liabilities to such taxes have to file Form 720 within a quarter to report and pay their equivalent dues.
Who Needs to File Form 720?
Not every business is obligated to file Form 720; however, if your company sells products or offers services that are liable for excise taxes, then you have to file. For instance, if your business pertains to distributing fuels, communications services, or heavy vehicles sales, you will likely need to file the form. Among other sectors are air travel manufacturing and others which include but are not restricted to tanning salons. Then dedicate just a few minutes to checking whether your business falls into these categories by going through the IRS guidelines or by getting hold of a tax professional.
How To File Form 720
Form 720 has to be filed quarterly, which means that you have to submit it four times a year: April, July, October, and January. The due dates for filing fall on the last day of the month following the close of every quarter. For instance, Form 720 due date for the first quarter- January 1 to March 31- falls on April 30. Of course, one has to adhere to these dates, as failure to file on or before the due date may attract penalties and interest. If one is unsure of their due date, they can visit the website of the IRS or reach out to a tax professional to confirm.
Step-by-Step Instructions for Form 720
- Identification Information You enter identifying information concerning your business at the top of Form 720. It requires the name and address of your business, as well as your EIN. Make certain all this information is correct, because mistakes could delay or misprocess your returns.
- Part I - Taxes Paid by Quarter Report the taxes paid related to specific goods or services here. The IRS has available some categories including fuel taxes, air transportation taxes, and retail taxes on certain luxury items, such as tanning services. For each applicable category, enter the dollar amount of taxable activity and calculate the tax due, using the guidelines of the IRS as a reference.
- Part II-Environmental Taxes: You should indicate any environmental excise taxes, including that imposed on chemicals or ozone-depleting substances. Do be very careful with this part since environmental excise taxes can become very complicated with more than one rate depending on what is to be taxed.
- Part III - Total Tax and Payments: Add together the amounts reported on Parts I and II to determine the total amount of excise tax for the quarter. Subtract any deposits or payments made during the quarter from the total tax shown to determine the amount owed.
- Schedule A - Excise Tax Liability by IRS Number: You should file Schedule A if your business liability exceeds a minimum level. Schedule A is used for reporting excise tax liability by specific IRS numbers, mainly on fuel and air transportation taxes.
- Signature and Date: After making sure all the information is correct, sign it, together with dating the form. A form should be signed by an authorised agent representing your business, usually the owner or a representative assigned.
Filing and Payment Options
Form 720 can be filed online, mail or both ways. The IRS encourages filing the form online because it is quicker, safer, and processes more quickly. The online filing is also less likely to make errors and allow easier tracking of your submissions. You can mail your completed Form 720 to an IRS office where your business is located.
Excise taxes can be paid through the Electronic Federal Tax Payment System (EFTPS) since, according to the IRS, this is the best way to pay. You can also mail in a check or money order with your paper form, but this procedure should not be taken for granted and considered a sure-fire way of avoiding delays or lost payments.
If You Miss the Deadline
If you missed the deadline for filing or paying Form 720, you will face penalty and interest charges. Due to failing to file, there might be a penalty charge of 5% of the amount due per month up to a maximum of 25%. Additionally, interest charges on the outstanding balance may be payable if you missed the deadline for paying your excise tax. Thus, to avoid this, we must submit and pay on time; even in case we cannot pay the full amount payable—partial payments can also reduce penalties.
Amended Returns
If you become aware that you have made a mistake on an already submitted Form 720, your choice is to file an amended return. For this purpose, you check the box at the top of the form marked "Amended Return" and furnish the right information. Prudent practice would be to do this as soon as you possibly can so you do not have to incur penalties and interest on a late filing.
Filing Form 720 is such a responsibility for businesses that incur federal excise taxes. To ensure compliance and stay away from all penalties, it's important that the steps taken should be known to meet the deadlines in filing. Ensure careful review of the form to be filed, whether electronically or by mail, as well as retain detailed records of all your transactions with regard to excise taxes. For complicated cases or when unsure of how much you owe, it's best to visit a tax professional for sound advice.