IRS form 720 Explained
TABLE OF CONTENTS
Key Takeaways:
- IRS Form 720, Quarterly Federal Excise Tax Return, is used to calculate, file, and pay excise taxes to the IRS.
- Excise taxes are imposed on specific goods and services that are deemed harmful to society, such as fuel, tobacco, and alcohol.
- IRS Form 720 must be filed every quarter, and excise tax payments are due twice a month.
What Is IRS Form 720?
IRS Form 720, Quarterly Federal Excise Tax Return, is a tax form that allows taxpayers to calculate, file, and pay federal excise taxes to the IRS. Small businesses that sell goods and services that are usually seen as a luxury or harmful to society may be required to pay excise tax.
What Are Excise Taxes?
Excise tax is a type of tax imposed on certain goods and services within the U.S. that are viewed as potentially harmful to society, such as non-renewable energy fuels.
Some examples of goods and services that are subject to excise tax include:
- Tobacco
- Alcohol
- Vaporizing devices
- Medical and recreational marijuana
- Gambling
- Fuel
- Gas
- Diesel
- Air transportation
- Highway use
- Firearms
- Ammunition
- Telephone communication
- Indoor tanning services
Who Is Required To File IRS Form 720?
The only businesses that are required to file IRS Form 720 are those that sell items, products, and services that incur excise taxes.
When Is IRS Form 720 Due?
Taxpayers are required to file IRS Form 720 every quarter of the calendar year, which amounts to four times annually. The due dates for each filing submission are as follows:
Quarter 1 (January, February, and March): April 30
Quarter 2 (April, May, June): July 31
Quarter 3 (July, August, September): October 31
Quarter 4 (October, November, December): January 31
In the case that the filing deadline falls on a weekend or federal holiday, the due date for filing IRS Form 720 is extended to the following business day.
When Are Excise Tax Payments Due?
While some tax payments are due on an annual basis, the IRS requires individuals who are responsible for paying excise taxes to submit their tax payments semimonthly, or twice a month.
How To Fill Out IRS Form 720
Here is an instructions overview of how to enter reportable information on IRS Form 720.
1. Gather all relevant tax forms and financial documents.
The first step in filing IRS Form 720 is to prepare by gathering all accounting documents related to your business to help you fill out the required information on the tax form.
2. Enter the basic business information.
On the top of Tax Form 720, input the business name, address, employer identification number (EIN), and the end date of the respective quarter.
3. Calculate the excise taxes using Part I and fill out IRS Form 720 Schedule A, Excise Tax Liability.
Part I of Form 720 must be filled out if businesses are required to pay environmental taxes, communication and air transportation taxes, fuel taxes, retail taxes, ship passenger taxes, foreign insurance taxes, or manufacturers’ taxes. Qualifying businesses can use the respective rates in the “Rate” column for calculations. At the bottom of Part I, fill out the total tax liability for the organization.
Businesses who owe tax liability for items listed in part I must fill out the Schedule A section of IRS Form 720. This section summarizes the company’s net tax liability, so to complete this section, fill out the sections related to semimonthly payment periods and enter the total.
4. Calculate the excise taxes using Part II.
Taxpayers must fill out part II of Form 720 if their business sells certain health insurance policies, fishing equipment, indoor tanning services, waterway fuel, or electric outdoor motors. Use the appropriate columns and rates to fill out this section and calculate the total, taking note of the different calculations needed for health plans.
5. Determine if Schedule T or Schedule C must be filled out in Form 720.
Schedule T, Two-Party Exchange Information Reporting
Schedule T must be filled out if the company sells or manufactures kerosene, gasoline, diesel fuel, or aviation gasoline. This section involves a two-party exchange, in which the person receiving the fuel is liable for the imposed tax, and is calculated based on the total taxable fuel gallons.
Schedule C, Claims
Schedule C applies to businesses that deal with fuel used for farming, off-highway business use, export, commercial fishing, certain buses, diesel and kerosene, foreign trade, certain helicopters, certain blood collector organizations, non-profit educational organizations, certain political entities, and military aircraft. These fuel businesses must fill out the Schedule C section of Form 720 by inputting the case number, tax rate, gallon amount, and total dollar amount of the claim, followed by the total on line 15.
6. Complete Part III of Form 720.
Use the totals from parts I and II to calculate the total taxes and report it in box 3 of Part III, or box 4 if you used Schedule C. Enter the excise tax deposits for the quarter in box 5 and any overpayment amounts in boxes 6 and 7.
Follow the adding instructions in steps 8 and 9 to calculate the balance due and enter the amount in box 10, or if there is an overpayment amount, select if you want the overpayment applied to your next tax return or issued as a tax refund.
7. Complete the form by signing and designating a third party, if applicable.
Sign and date at the bottom of the tax form. If you want to designate your accountant or another tax professional as your third party, enter that information.
How To File IRS Form 720
Taxpayers can choose to mail their IRS Form 720 to the IRS directly or to file electronically. If filling out IRS Form 720 reveals a balance due, the tax bill can be paid using direct debit, check, or money order.
If you need help understanding your taxpayer responsibilities related to excise taxes, consulting with an experienced tax professional is a beneficial strategy to ensure your tax compliance is complete and maximize your tax-exempt options. Schedule a free consultation with the tax experts at Ideal Tax to get started today.
Luis serves as the Director of Operations for Ideal Tax, overseeing a multifaceted team including case management, tax professionals, document specialists, customer support, training, and development.
