If you are a business dealing with services and goods subject to an excise tax, you must prepare an excise tax form or a Form 720 to report your business taxes to the Internal Revenue Service (IRS). This form is often considered incredibly complex, however, and many individuals have a hard time determining whether they need to fill it out. Failing to do so can not only impact the amount of a company’s returns, but also become a significant problem for their business if they do not file on time.
Fortunately, this guide will explain everything you need to know about Form 720, including how this form works and whether your business is required to fill it out.
Excise Taxes and Form 720
Excise taxes are a legislated tax on goods or services at purchase that are usually paid by merchants. They are often passed onto consumers through higher prices, though, and some can be directly paid by the consumer — for example, property taxes. A few things to keep in mind:
- IRS Form 720 is an excise tax form required to be filled out when a business deals with the sale of certain goods and services.
- A company in the market of these specific goods and services must pay extra taxes, also known as excise taxes.
- These taxes are calculated through Form 720.
Sometimes the excise tax is also referred to as an “excise duty,” and these taxes can be imposed by local, federal, or state governments.
Who Uses IRS Form 720?
A business that buys or sells specific products or services indicated in the regulations will need to pay the excise tax and fill out Form 720 on a quarterly basis or, in certain circumstances, on a semi-monthly basis.
According to the regulations, goods subject to excise taxes are usually considered harmful to the environment and people. These goods include the following:
- Alcohol
- Gasoline, crude oil, diesel fuel
- Airline tickets
- Cars that consume gas
- Coal products
- Firearms
- Sports fishing equipment
- Gambling
- Foreign insurance
- Indoor tanning services
- Tobacco products
- Tires for highway vehicles
- Trailers
A business that only purchases the excise goods does not need to file a Form 720. However, certain companies — such as those in farming, manufacturing, landscaping, and construction — may see a fuel tax credit for federal fuel excise taxes passed onto them.
How to Fill Out Form 720
One of the biggest complaints about Form 720 is that it is not a simple one to fill out. The following steps will give you a better understanding of how this process works:
1. Enter Your Business Information
This section will include your business address, your Employer Identification Number, and the last day of the quarter in which you are filing the return.
2. Part One
You will only fill out this part if your business is subject to excise tax such as an environmental, air transportation, fuel, foreign insurance, manufacturer (coal, gas, tires, vaccines), retail (for trailers, trucks, tractors) or a ship passenger tax. One important thing to note is due to COVID -19, legislators introduced an excise tax “holiday” where individual businesses get a reprieve and can skip the specific fuel excise tax from March 28, 2020, to December 31, 2020.
3. Schedule A
If you reported any tax liabilities in Part One, you will need to break down your excise tax liability semi-monthly for the entire quarter in Schedule A.
4. Part Two
Part two will focus on the following excise taxes, including patient-centered outcome research fees, electric outboard motors, sporting fishing equipment, archery supplies, tanning services, floor stocks, and fuel use.
5. Fill Out Schedule T and Schedule C
If you reported fuel excise taxes in either Part One or Part Two, you need to fill out Schedule T, and Schedule C. Schedule T will ask about two-party exchanges, while Schedule C gives a taxpayer a chance to claim credits against their fuel excise taxes.
6. Part Three
In this part of the form, you will figure out your business’s current excise tax liability. Once you finish part three, you will know whether you need to pay more in excise taxes or if you are due for a federal excise tax return.
Once you complete the form, make sure you sign and date it. Then you can either e-file IRS Form 720 through the IRS website or with the help of a business tax attorney.
Common Problems with Form 720
It is important to remember that there are some common pitfalls that may arise when you are filling out IRS Tax Form 720, including:
Missing the Filing Due Date
The due date to file IRS Tax Form 720 is on the last day of the month following the quarter-end. That means, for example, that for a quarter ending on March 31. You need to file Form 720 by April 30.
Failing to Make Payments
Typically, excise taxes should be paid on a semi-monthly basis and not every quarter. However, if the total is under a certain amount, the IRS will allow you to delay payment until you have accumulated a sufficient tax liability.
If you are having issues filling out Form 720, it is recommended that you consult with a tax professional that can walk you through this form and ensure you complete everything accurately and on time.
Get the Help You Need with Form 720 from a Tax Professional
Form 720 is an all-encompassing form that embodies the purpose of the excise tax, but this makes the form incredibly long and complicated. Luckily, you do not have to tackle this form on your own.
Reach out to Silver Tax Group to get the professional help you need to complete this document. Contact us today and speak with one of our experts about any Form 720 or other small business tax questions you might have.
