Taxes are a simple fact of life for everyone, but they can be especially burdensome for business owners. While you might already be familiar with employment taxes, property taxes, business income taxes and franchise taxes, you may not have heard of excise taxes. Know that this type of tax doesn’t apply to every industry, but it’s still worth knowing about no matter what kind of business you’re operating.
Understanding Excise Taxes
Sometimes called duties, excise taxes are common for the consumption or use of specific products. Examples of items that have such a tax include alcohol, cigarettes and motor fuels. One reason these products are as expensive as they are is that the price includes the excise tax. You can expect to pay an excise tax on the following.
- Fuels used in businesses
- Fishing rods, poles, outboard motors and other types of sports fishing equipment
- Ozone-depleting chemicals, domestic petroleum oil spills and other environmental products
- Air transportation and communications
- Operating a business with a betting pool or one that accepts wagers
- Buying up trailers, trucks and semitrailers
- Operating an indoor tanning bed business
There are also excise taxes related to foreign insurance, floor stacks on ozone-depleting chemicals, coal, gas guzzlers and some tires. If you think it’s even possible your business might fall under any of these categories, it’s best to ask either an accountant or a tax attorney if you have to pay excise taxes.
If it’s determined you do have to pay excise taxes, you’ll want to do so with Form 720. The form has a line for every type of excise tax there is, and a large percentage of them are determined by the unit weight or sales. For instance, you have to pay 24 cents per gallon in excise taxes for diesel fuel. On the form you would note the number of gallons you sold and multiply it by the current rate for each gallon. Something else to be aware of is that reporting excise tax is done by calendar quarter. You have to file a Form 720 for each calendar quarter you collect excise tax. Quarters last three months long and begin on the first day of January. You’ll need to make sure you submit your form by the last day of the month following the end of the quarter. For instance, your Form 720 needs to be filed by April 30th for a quarter ending on March 31st. Should your due date fall on a holiday or weekend, your form isn’t due until the next business day.
Paying Your Excise Tax
You can pay your excise taxes electronically. It’s best that you send both your form and your payment early in order that they can reach the IRS well before the deadline. Doing so goes a long way in avoiding penalties and fees. Take note that the IRS requires retailers, manufacturers and other businesses that are required to pay excise taxes to make their deposits more frequently than they are required to file the proper forms.
In most cases, you’ll have to take care of your excise tax payments on a semimonthly schedule. With that information in mind, if the taxes you owe fall below a certain amount, you’re allowed to defer your payment for that quarter until you reach a sufficient liability. Again, it’s best to seek the help of an accountant or tax attorney.
No matter what kind of business you have or plan on starting, proper research and planning is a must if you hope to avoid a substantial and expensive business blunder. You don’t want to be on the receiving end of penalties or fees from the IRS, and that’s especially true if the future of your business is on the line.
The content on our website is only meant to provide general information and is not legal advice. We make our best efforts to make sure the information is accurate, but we cannot guarantee it. Do not rely on the content as legal advice. For assistance with legal problems or for a legal inquiry please contact you attorney.