Form 720: A Guide to the Quarterly Federal Excise Tax Return

Form 720, also referred to as the Quarterly Federal Excise Tax Return, may be a form that businesses that manufacture, sell, or use some goods and services in the United States are obligated to file. Excise taxes unlike income taxes are levied on certain products, services and activities like fuel, air transportation, environmental taxes, indoor tanning services and heavy highway vehicle use.

Form 720 is a crucial understanding that businesses under these tax requirements should have. Proper and timely filing prevents penalties, interest, and other unwarranted complexities with the Internal Revenue Service (IRS).

This guide will help you understand all that you need to know in simple terms whether you are filling your Form 720 the first time or seeking to enhance your process of tax compliance.

What Is Form 720?

Form 720 is a tax return that is filed and paid to the IRS to report and pay federal excise taxes on goods, services and activities. Excise taxes are imposed on particular industries and transactions unlike payroll or income taxes.

IRS has made it mandatory that eligible businesses should file Form 720 on a quarterly basis, although they may only be liable to taxes under one of the categories addressed by the form. The return will enable the taxpayers to compute the amount of the excise tax payable and remit the same.

The following are some of the common excise taxes that are reported on Form 720:

• Fuel taxes
• Air transportation taxes
• Communications taxes
• Environmental taxes
• Tax on indoor tanning services
• Taxes paid by manufacturers to some products.

Companies that are not certain about whether or not they need to file should take time to read the IRS guidelines or seek the services of a qualified tax expert.

Who Needs to File Form 720?

Form 720 does not have to be filed by all businesses. It is usually applied to businesses that engage in activities that are liable to federal excise taxes.

You may need to file Form 720 if your business:

• Produces or imports taxable goods
• Collects excise tax on products
• Works in a business that deals with fuel or transport
• Provides taxable services
• Is responsible for environmental or communications excise taxes
• Gathers excise duties on customers.

Examples of companies that file Form 720 include those in the aviation industry, fuel distribution, trucking, telecommunications, and some manufacturing industries.

Even small businesses can be obligated to file in case of taxable activities. It is always a good idea to review your business operations to ensure that you are in compliance with the requirements of the IRS.

What Information Is Included on Form 720?

Form 720 is broken down into various sections that address various types of federal excise taxes.

The form usually consists of:

• Name of the business and Employer Identification Number (EIN)
• Period of tax being reported
• Excise tax categories
• Taxable amounts or sales
• Tax calculations
• Credits, if applicable
• Total tax liability
• Payment information.

Certain businesses might also be required to fill in extra schedules depending on the kind of excise tax they are filing.

The accuracy is very crucial when filling out Form 720. Wrong computations, omission of information or reporting mistakes may lead to delays, IRS notices, or fines.

Form 720 Filing Deadlines and Payment Requirements

Form 720 is to be submitted quarterly, which means that businesses usually have to file four returns annually.

The deadlines of filing are:

First quarter (January-March): April 30.

Second Quarter (April-June): July 31.

Third Quarter (July-September): October 31.

Fourth Quarter (October-December): January 31.

If a deadline falls on a weekend or federal holiday, the due date usually moves to the next business day.

The businesses are required to pay excise taxes by the deadline. Some businesses might also be asked to make semi-monthly deposits rather than paying the full amount with the return depending on the amount of the tax liability.

Late filing or late payment can result in:

• Failure-to-file penalties
• Failure-to-pay penalties
• Interest on outstanding taxes
• Other IRS enforcement measures.

When possible, making payments electronically will assist in timely processing.

How to Complete Form 720 Correctly

Form 720 is quite easy to prepare when the businesses have organized records during the year.

Before completing the form, gather:

• Sales records
• Fuel transaction reports
• Taxable service records
• Previous Form 720 filings
• Supporting tax documentation
• Business identification information.

These are simple steps to follow:

• Enter your business information.
• Determine the relevant types of excise tax.
• Determine the amount subject to tax.
• Use the relevant tax rates.
• Report any allowable credits.
• Compute the amount of tax payable.
• Check the form and submit.

Checking all calculations twice can save a lot of money. Accounting software is used by many businesses or tax professionals to be accurate and compliant.

Maintaining proper documentation is equally important because the IRS may request supporting records during an audit.

Common Mistakes to Avoid When Filing Form 720

Even the seasoned businesses sometimes err in preparing Form 720. Luckily, most of these errors can be prevented.

Some of the most common errors include:

• Late filing (after the quarterly deadline).
• Filing wrong tax figures.
• Applying old tax rates.
• Forgetting to include required schedules
• Making false claims of credits without documentation.
• Keying in wrong EIN data.
• Lack of necessary signatures where necessary.

The other frequent problem is the misconception of what activities are indeed liable to federal excise tax. Businesses are advised to periodically consult IRS guidance since tax rules and reporting requirements can vary.

Good bookkeeping habits, frequent reconciliation of financial records and thorough review prior to filing go a long way in minimizing the chances of errors in filing.

Once you have filed, it is usually advisable to amend any error that you have made as soon as you can and not wait until the IRS sends you a notice.