Federal Excise Taxes and IRS Form 720

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Under federal regulations of the United States, specific products are subject to an excise tax. If your expat business deals in these certain products, the Internal Revenue Service needs you to file IRS Form 720 every quarter. Here is something that you must know about IRS Form 720.

What Is IRS Form 720?

Quarterly Federal Excise Tax Return or IRS Form 720 is a tax form designed to assist businesses pay and report their federal excise taxes.

What Is an Excise Tax?

An excise tax is imposed tax on certain products. These products may be imported from another country or even manufactured in the United States. Based on the item in question, the excise tax may be a percentage or flat fee of the final expenses of the product.

Excise taxes may be levied for several reasons. Excise taxes, mostly called “sin taxes,” are used to increase the cost of products seen as environmentally unfriendly or unhealthy to discourage clients from buying them. A few examples are:

  • Soft drinks
  • Alcohol
  • Gas guzzler vehicles
  • Tobacco

Other excise taxes are used to aid cover costs related to the product being taxed. For instance, an excise tax on gasoline is also used to fund local road repairs. Few excise taxes are imposed by the state or local government. For now, also we are talking about federal excise taxes, as those are the ones included in IRS Form 720.

Who Has To File IRS Form 720?

Companies that sell or even produce goods under an excise must report their income tax obligations using IRS Form 720. At times, these companies are located in the United States. Others might be located in a foreign country and should pay an excise tax to import their products into the United States.

A few of the products under an excise tax are:

  • Tires
  • Arrows and bows
  • Jet Fuel
  • Ozone-depleting chemicals
  • Gasoline
  • Tires
  • Vaccines
  • Fishing equipment
  • Coal
  • Medical devices
  • Electric outboard motors
  • Gass Guzzler vehicles

While alcohol, tobacco, and firearms are subject to excise taxes, these are not handled through IRS Form 720. Also, these products are authorized by the Tobacco Tax and Alcohol and Trade Bureau and should be reported through their site.

For a complete list of the services and products that are covered by (Internal Revenue Service) IRS Form 720, you may check the IRS Form instructions given by the IRS (Internal Revenue Service)

When Is Form 720 Due?

IRS Form 720 is due every quarter. The corresponding deadlines and quarters are listed here:

  • 1st January to 31st March- Quarter 1
  • Due date: 30th April
  • 1st April to 30th June- Quarter 2
  • Due date: 31st July
  • 1st July-30 September- Quarter 3
  • Due date: 31st October
  • 1st October to 31st December- Quarter 4
  • Due date: 31st January

Any time the due date to file income taxes falls on a legal holiday or weekend, you will get an automatic extension to the next working day.

Remember: IRS Form 720 is due only once every quarter; you should estimate and pay any excise taxes even on a semi-monthly basis. A semi-monthly base means dividing each month into two parts:

  • 1-15 days (First-semi monthly time)
  • 16 to month end (Second semi monthly time)

You should submit your payments on the day before the last day of the month. For instance, the first semi-monthly time is on the 15th day, so you have to submit the payment on the 14th day of the month.

Also, like when filing IRS Form 720 itself, if the due date lands on a legal holiday or weekend, you have to wait to file on the next working day. You may send these semi-monthly payments to the Internal Revenue Service by electronic transfer. (ACH deposit)

How Do I File Form 720?

If your company needs to file IRS Form 720, don’t worry too much, it is not at all a complicated tax form. Still, to save you from headaches and time, let us go over how to fill out and file IRS Form 720.

Prepare the documents properly.

Before starting to fill out IRS Form 720, take the time to collect all the required documents you require in one place. You must be aware of your company’s total sales, inventory, units, and other relevant information.

Enter The Basic Details 

Once you have the correct documents on hand, it is best time to start with IRS Form 720. First, you have to list a few basic details about yourself, such as your:

  • Address
  • Name
  • EIN or Employer Identification Number

For a foreign address, continue to practice whatever country you are in for entering the postal code, and do not abbreviate the name of the country. Then, you have to offer the end date for the business quarter that you are reporting.

Fill the Part I

You have to complete Part I of IRS Form 720 if your company has any of the following excise taxes:

  • Fuel tax
  • Environmental tax
  • Retail tax
  • Manufacturer’s tax
  • Ship passenger tax
  • Air transportation tax
  • Communication tax
  • Foreign insurance tax

The IRS Form 720 itself will provide you with detailed information on what services and products fall into these categories. Also, you may see the IRS Form 720 instructions.

If you become eligible for any of these income taxes, you may use the ‘Rate’ column to calculate how much your company owes depending on the total units sold or sales. You must add the amount you have to the “Tax” column and add the total amounts together at the bottom of Part I.

Fill out the Schedule A part.

If your company has any taxes in Part I, you may have to finish Schedule A too. It means you have to fill out each semi-monthly period or net tax liability; then, you may combine them for the total liability. You have to complete Schedule A Section 1. But if you are eligible for any of the alternative method taxes numbers 26,27,22, or 28 in Part I- you have to complete it instead. It is incomplete. You have to search for what you will require to complete.

Fill Out Part II

Along with Part I, Part II provides you a complete list of services and products you might owe excise taxes for like:

  • Arrows and bows
  • Electric outboard motors
  • Waterways fuel
  • Certified health insurance policies
  • Sport fishing equipment
  • Indoor tanning services

Once again, IRS Form 720 and the guidelines will give a complete idea of what fits into each and every category.

The regulations for filling out Part II are exactly similar to Part I

Fill Out Schedule T

Schedule T is only required for companies that sell or produce:

  • Gasoline
  • Diesel
  • Aviation gasoline
  • Kerosene

If this implies to you, you may use Schedule T to report the complete amount of gallons received in a two-party exchange or fuel delivered within a terminal.

Fill Out the Schedule C form.

Schedule C of IRS Form 720 allows you to reduce how much you owe for Part II and Part I by claiming that your company sells or produces fuel used for certain purposes such as foreign trade, farming, or military use.

The instructions of the Internal Revenue Service for Form 720 list the products that you may claim. If you may claim any of the uses listed, you may fill out Schedule C with the following:

  • Gallons number
  • The associated income tax rate
  • The correct use-case number, for instance, 4 for fuel used by commercial fishing vessels
  • The dollar amount of the claim

Fill Out Part III

Once you reach Part III of IRS Form 720, you may take the details you calculated on all past sections and enter the total numbers into the appropriate boxes. Here is how you can do it:

  • If you completed Schedule C, you may put your total claims in box 4
  • You may add boxes 5 and 6, combine and put the total amount in box 8
  • If you completed Part I and Part II, you may combine those total and put them in box 3
  • If you deposit any excise tax for the quarter you report, you may put the total in box 5
  •  You may add boxes 8 and 4 and put the total amount in box 9
  • If you have overpaid your excise taxes in the past quarter, you have to put the total additional payments in boxes 6 and 7
  • If the total amount in box 9 is huge than in box 3, you may use box 11 to select whether you wish to apply it to your next return or get the excess as a refund.
  • If the total amount of tax you put down in box 3 is bigger than the amount reflected in box 9, you may enter the difference in box 10 (this is no doubt your due balance, that you have to pay when you file IRS Form 720)

Lastly, you may sign and date the form. Now, you are ready to send it in.

File Form 720 and Pay Any Due Balance

Once you complete IRS Form 720, ensure to review it to check all the details you have entered are correct. Once you check them, you may have to file them with the Internal Revenue Service. There are two methods to do this:

First, you may directly mail it to the Internal Revenue Service at this address:

Treasury department

Internal Revenue Service

Ogden, UT 84201-0009

An alternate option that is more hassle-free, you may file IRS Form 729 using the IRS e-file program.

In this way, if you have any due balance in box 10 of Part III, you should pay it off at the similar time you file your form. Based on whether you file through the mail or electronically, you may pay your balance with a money order, direct debit, or even a check.

Do you need assistance with your expat income taxes?

Hopefully, after reading this blog, you will get a clear picture of IRS Form 720 and how it operates. But if you have any doubts related to IRS Form 720, make sure to reach out to USTAXFiling. At USTAXFiling, our experts have rich years of experience assisting expats around the world in taking care of their US income tax obligations, no matter how complex they are. Our dedicated and talented team of USTAXFiling experts will make sure to resolve your query at the earliest. You may connect with us anytime at USTAXFiling, and we will be happy to resolve all your income tax problems. Or, if you are ready to get expert help with meeting your tax obligations, connect with USTAXFiling, your tax consultant, right away!


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