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Taxes are perhaps one of the most difficult and complex responsibilities involved with owning a business. There are a variety of different forms to complete—each with specific requirements and deadlines to adhere to. This being said, if your business deals in goods and services that are subject to excise tax—like air transportation, fishing equipment, or gasoline—then you’ll have to complete IRS Form 720. Form 720 must be filed with the IRS on a quarterly basis in order for your business to report and pay your federal excise tax liability.
You may be wondering, however, exactly what is Form 720? What is an excise tax? To address these kinds of questions, we’ve created this Form 720 guide. We’ll break down IRS Form 720—discussing who should fill it out, where you can find it, and when it should be completed. We’ll also provide step-by-step Form 720 instructions so you know exactly how to fill out this Form for your business taxes.
IRS Form 720, or the Quarterly Federal Excise Tax Return, is an IRS tax form that businesses must complete on a quarterly basis in order to report and pay federal excise taxes. An excise tax is a tax that the federal government imposes on specific goods or services that are manufactured in or imported into the U.S. Excise taxes are often included in the price of the product, like gasoline or alcohol, so you might not even realize you’re paying them. However, if your business sells a good or service that is subject to excise tax, then you are responsible for reporting and paying for those taxes—IRS Form 720, therefore, allows you to do just that.
IRS Form 720 consists of three parts, as well as Schedule A, Schedule T, and Schedule C sections and a payment voucher (called Form 720-V). If your business is responsible for completing Form 720, you must do so quarterly and can file electronically or by mail. Payments for excise taxes, however, are required on a semimonthly basis and should be made by electronic funds transfer.
Your business needs to fill out IRS Form 720 if you deal in the goods or services for which excise taxes are due. These products and services can include, but are not limited to:
Form 720 lists all of the products and services that qualify a business to pay excise taxes. Additionally, in the official Form 720 instructions document, the IRS lists two conditions for you to determine whether you need to complete this form:
If, therefore, your business does not deal with any of the products or services listed on Form 720, you are not responsible for excise taxes and do not have to fill out this tax form. It’s also important to note that although alcohol, tobacco, and firearms require excise taxes, they are not covered under IRS Form 720. These products are regulated by the Alcohol and Tobacco Tax and Trade Bureau and taxes must be filed using the return form on their website.
As we previously mentioned, the IRS Form 720 needs to be completed on a quarterly basis. The IRS Form 720 instructions break the deadlines into a helpful chart that we’ve re-created here:
Essentially, Form 720 needs to be completed by the last day of the first month that follows the end of the prior quarter (e.g. the first quarter ends on March 31, so the form is due by April 30). If the due date for filing Form 720 falls on a Saturday, Sunday, or legal holiday, you can file the return by the next business day.
However, although IRS Form 720 only needs to be filed quarterly, payments for excise taxes must be made semimonthly. The IRS considers a semimonthly period as the first 15 days of the month (first semimonthly period) or the 16th through the last day of the month (second semi-monthly period). If your business is paying excise taxes for communications or air transportation, you have the option to pay according to an alternative schedule, again, as dictated by the Form 720 instructions.
Excise tax deposits must be made to the IRS by electronic transfer (aka an ACH deposit) and submitted at least one day before the date the deposit is due—so if the due date is January 15, the payment must be submitted by January 14. Just like with filing Form 720, if a due date falls on a weekend or legal holiday, the next business day becomes the de facto deadline.
You can find IRS Form 720 along with the official instructions on the IRS website. From there, you can print the form, fill it out, and mail it to the IRS, or—alternatively—you can fill it out on your computer, print it, and mail it to the IRS. You also have the option to file the entire form electronically by working through any electronic return originator, transmitter, or intermediate service provider participating in the IRS e-file program for excise taxes. You can search the IRS database of authorized providers to locate a provider in your area.
Now that we’ve gone through the basic information about IRS Form 720, let’s dive in deeper into the specific pieces of the form—detailing step-by-step how to fill it out for your business.
If you’ll be filling out Form 720 for your business, it will be useful to gather a few accounting documents before beginning. These reports, which can be generated from your accounting software platform, like total sales and units sold, will be instrumental in helping you calculate the excise taxes for Form 720. Depending on your specific business, you’ll need to calculate your excise taxes as a percentage of total sales or a percentage of units sold—these documents will allow you to do so.
Once you’ve gathered the appropriate reports, you can begin filling out the first part of IRS Form 720, which asks for your basic business information. As you can see in the photo below, you’ll be asked to provide your name, address, end date of the respective quarter, and your employer identification number (EIN).
You will complete Part I of Form 720 if your business needs to pay the following taxes:
As you can see below, Part I of the form (as well as the IRS Form 720 instructions document) details specifically what products qualify for the completion of this section. If your business qualifies, you will use the respective rate in the “Rate” column to calculate the taxes your business is responsible for.
Based on the calculation of your total sales/units sold and the respective rate, you will fill in your business’s tax responsibility in the “Tax” column. At the bottom of Part I, you will add up all of the taxes and fill in your total amount.
If none of the excise taxes in Part I apply to your business, you can bypass Part I and head directly to Part II. However, if your business has any tax liability in Part I, you’ll also have to complete the Schedule A section of IRS Form 720.
The Schedule A section of IRS Form 720 is to be filled out only by businesses that have a tax liability from any tax in Part I of the form. If, on the other hand, you don’t have liability from Part I, but do have liability for Part II, you do not need to fill out Schedule A. Schedule A reports your business’s net tax liability. In Schedule A, you will add the net tax liability for each tax for each semimonthly period and enter the total in the applicable box.
You will complete number 1 of Schedule A, unless you are liable for any of the alternative methods taxes, as indicated by the appropriate IRS numbers (22, 26, 28, or 27—which correspond to Part I). If your business is responsible for any of those taxes, on the other hand, you will complete number 2 of Schedule A.
You will complete Part II of Form 720 if your business provides any of the following products or services:
Essentially, Part II will be completed the same way as Part I. If your business qualifies for any of the goods or services in Part II, you will calculate your tax using your appropriate sales documents and the rate specified in the “Rate” column. You’ll fill in the calculated tax in the “Tax” column and add up your total at the bottom of Part II. It’s worth noting that the tax for health insurance is calculated differently than the other categories—using the average number of lives covered, as opposed to units sold or total sales.
Before moving on to Part III, you’ll want to determine if you need to fill out Schedule T or Schedule C of the IRS Form 720. Both Schedule T and Schedule C are related to businesses that deal with fuel.
You only need to complete the Schedule T section of Form 720 if your business produces or sells diesel fuel, kerosene, gasoline, or aviation gasoline. Schedule T is used to report the total amount of taxable fuel gallons received or delivered in a two-party exchange within a terminal.
In a two-party exchange, the person receiving the fuel, not the person delivering it, is liable for the tax imposed on the removal of taxable fuel from the terminal. If, therefore, your business deals with any of these fuel types according to the IRS definition of a two-party exchange, you will need to complete Schedule T as you see below.
Like Schedule T, Schedule C is only applicable to businesses that deal with one of the fuel types (and a few tire types) as indicated in Parts I and II of IRS Form 720. If you are liable for taxes on Part I or Part II, you may be able to reduce the amount you owe by filing a claim on Schedule C. However, only certain types of fuel and use-cases qualify for a Schedule C claim. The IRS indicates the use types that can qualify for a Schedule C claim in the chart below:
If, therefore, your fuel business falls under on of the use-cases in this chart, you can fill in Schedule C by indicating the use-case number, the tax rate, gallons amount, and finally, the total dollar amount of your claim.
Once you’ve completed any appropriate columns in the Schedule C, you’ll add up your final total on the last Schedule C page and enter it on “line 15”—you will use this total to complete Part III of IRS Form 720.
On Part III of IRS Form 720, you’ll calculate your total taxes by adding both totals from Part I and Part II and filling that amount in box number 3. If you completed Schedule C, you’ll add your total claims amount in box number 4. In box 5, you’ll write your excise tax deposits made for the quarter. If you overpaid in previous quarters, you’ll write this amount in box 6 and box 7. Box 8 will be a total of boxes 5 and 6 and box 9 will be a total of boxes 4 and 8. If your total tax in box 3 is greater than box 9, you’ll enter the difference, your “balance due” in box 10. You will have to pay this amount with your return filing of Form 720. On the other hand, if box 9 is greater than box 3, you will be able to indicate what you wish to do with the overpayment difference. You can either apply the amount to your next return or have it refunded to you.
Finally, you’ll sign and date IRS Form 720 to complete it. If you are going to designate a third party, like your certified public accountant (CPA), to discuss your return with the IRS, you will indicate this information in the “Third party designee” section. Additionally, if your accountant or other tax professional prepared Form 720 for your business, they’ll fill in their information in the “paid preparer use only” section.
Once you’ve completed and reviewed your Form 720, you’ll need to file it with the IRS before the specified due date. As we mentioned earlier, there are two ways to file. You can mail your Form 720 directly to the IRS or, if you’re completing the form through the IRS e-file program, you can file electronically. When you file Form 720, you must also pay your balance due (from box 10 of Part III). You can pay your balance with a direct debit, check, or money order. If you’re filing electronically, you must pay with a direct debit. If you’re filing physically, however, you have the option to complete Form 720-V—this payment voucher form will accompany your check or money order to pay your balance due. You will then send Form 720-V in with your completed Form 720 when you file to the IRS. It’s important to remember that before you file Form 720 with the IRS, you’ll want to make copies of your completed form for your business’s records.
As you can see, there are many involved steps required to complete IRS Form 720. To help streamline this tax process, here are some tips to keep in mind:
At the end of the day, although IRS tax forms can be complicated and difficult, they’re a necessity of running your business. And if your business deals in goods or services that are subject to excise taxes, you’ll need to complete IRS Form 720 on a quarterly basis. As we’ve shown, there are several different pieces involved with completing this form, each with a set of qualifications that determine your particular business’s responsibility. To ensure that you’re completing Form 720 correctly and on-time, we recommend keeping organized, thorough records and utilizing the services of both an accounting software and tax professional. This way, you have more time and energy to devote to other parts of your business operations.