If your business manufactures, sells, or uses taxable goods and services, you may be required to pay excise taxes. Excise taxes are a type of sales tax that is levied on specific products and activities. This blog post will discuss excise taxes, how they apply to small businesses, and some tips for reducing the amount of tax owed. We will also provide information on how to file an excise tax return correctly. Finally, we will look at common mistakes when filing this type of return.
1. What is an excise tax, and what are some common examples?
An excise tax is a type of tax that is levied on specific products and activities. Examples of items subject to excise taxes include gasoline, alcohol, cigarettes, and certain types of vehicles. Excise taxes are often imposed at the time of purchase, and the amount owed can vary depending on the item purchased.
In addition to items subject to excise taxes, certain activities may be subject to this type of tax. For example, some states levy an excise tax on the sale of tickets to sporting events.
State and local governments generally impose excise taxes, but the federal government can also impose them.
While excise taxes can be imposed on a wide range of items and activities, they are typically levied on goods considered harmful or unnecessary. For example, cigarettes are subject to excise taxes because they harm your health. Gasoline is subject to excise taxes because it is necessary for operating a vehicle.
The amount of tax you owe will vary depending on the item or activity being taxed. For example, the federal excise tax on gasoline is 18.40 cents per gallon. California imposes an excise tax of 30 cents per pack of cigarettes.
In some cases, you may be able to receive a credit or refund for the excise taxes that you have paid. For example, if you purchase gasoline in one state and then use it in another state, you may be able to get a refund for the difference in excise taxes.
It’s important to note that excise taxes are different from sales taxes. Sales taxes are imposed on selling all goods and services, regardless of whether they are considered harmful or necessary. Excise taxes, on the other hand, are only levied on specific items and activities.
Tax Type:
Income Taxes
As a business owner, you are required to pay income taxes on your business’s profits. The amount of tax that you owe will depend on the type of business that you have, as well as your income level. If your business is a sole proprietorship or partnership, you must file an annual tax return with the IRS. You will need to file a corporate tax return if your business is incorporated.
Self-Employment Taxes
If you are self-employed, you are also responsible for paying self-employment taxes. Self-employment taxes include Social Security and Medicare taxes. The amount of tax that you owe will depend on your income level. For example, in 2019, if your net earnings from self-employment were $400 or less, you are not required to pay self-employment taxes.
Payroll Taxes
If you have employees, you are also responsible for paying payroll taxes. Payroll taxes include Social Security and Medicare taxes. The amount of tax you owe will depend on the number of wages that you pay your employees. For example, in 2019, if you paid your employees $800 or less in wages, you are not required to pay payroll taxes.
If you owe payroll taxes, you must file a quarterly tax return with the IRS. You can use Form940 to file your return.
Sales Taxes
As a business owner, you may also be required to collect and remit sales taxes. The amount of tax you owe will depend on the state where your business is located. For example, California imposes a sales tax of seven percent.
You must obtain a sales tax permit from your state if you sell taxable goods or services. You will also need to collect taxes from your customers and remit them to the state regularly.
You can use FormST-100 to file your return.
Use Taxes
In some cases, you may also be required to pay use taxes. Use taxes are imposed on the purchase of goods and services that are used in your business. The amount of tax you owe will depend on the state where your business is located. For example, California imposes a use tax of seven percent.
You can use Form FTB 3522 to file your return.
Common Mistakes
One of the most common mistakes business owners make is failing to file their taxes on time. You may be subject to late fees and penalties if you do not file your taxes by the deadline. Another common mistake is failing to pay the total amount of tax owed. You may be subject to interest and penalties if you do not pay your taxes in full. Finally, another common mistake is claiming deductions or credits you are not entitled to. You may be subject to penalties if you claim deductions or credits you are not entitled to claim.
2. How do excise taxes apply to small businesses?
Small businesses may be required to pay excise taxes if they manufacture, sell or use taxable goods and services. The amount of tax owed will depend on the type of business and the number of taxable goods and services sold.
As a small business owner, you must be familiar with the excise tax laws that apply to your business. You can find more information about excise taxes in Publication 510, Excise Taxes, which is available on the IRS website.
You must file a quarterly tax return if you owe excise taxes. You can use Form 720 to file your return.
Tax returns are due on the following dates:
• April 30 – for taxes owed for the first quarter of the year
• July 31 – for taxes owed for the second quarter of the year
• October 31 – for taxes owed for the third quarter of the year
• January 31 – for taxes owed for the fourth quarter of the year
You may be subject to late fees and penalties if you do not file your return on time.
Calendar quarter Due date
January – March April 30
April – June July 31
July – September October 31
October – December January 31
When filing your return, you will need to include the following information:
• Your name, address, and Social Security or tax identification number.
• The name and address of your business.
• The type of business that you operate.
• The period for which you are filing your return.
• The amount of tax that you owe.
You will also need to attach a copy of your tax return to your payment. You can make a payment by check or money order, or you can pay online.
If you cannot pay the total amount of tax you owe, you can request an installment agreement with the IRS. You must complete and submit Form 9465, Installment Agreement Request, and your tax return.
Appropriate tax records should be maintained for at least three years.
3. What are some tips for reducing the amount of excise taxes owed?
There are a few ways that you can reduce the amount of excise taxes that you owe:
-You can purchase tax-exempt items: Tax-exempt items include certain types of fuel, machinery, and equipment.
-You can use tax-free methods of transportation: Tax-free methods of transportation, including public transportation, bicycles, and electric vehicles.
-You can claim deductions and credits: You may be able to claim deductions and credits for purchasing certain types of equipment.
For more information about reducing your excise taxes, contact the IRS or speak with a tax professional.
When paying excise taxes, it is essential to remember that you have options. You can reduce the tax you owe by taking advantage of deductions and credits. However, if you are unsure how to apply these options, it is always best to speak with a tax professional.
Paying your excise taxes on time is also essential. You may be subject to late fees and penalties if you do not pay your taxes by the deadline. Therefore, it is essential to make sure that you file your return and pay your taxes on time.
4. How can you file an excise tax return?
You can file your excise tax return online, by mail, or by telephone.
If you file your return online, you must use Form 720.
If you file your return by mail, you will need to use Form 720 and send it to the address listed on the form.
If you file your return by telephone, you must call the IRS at 800- TAX-FORM (800-282-3676).
When filing your excise tax return, it is essential to remember that you will need to include all of your supporting documentation. This documentation includes receipts, invoices, and other records showing the amount of taxes you owe.
You may be subject to interest and penalties if you do not have all the required documentation. Therefore, it is essential to ensure that you have all the necessary documentation before you file your return.
Electronically file your excise tax return to receive your refund faster. Filing electronically is safe, secure, and accessible. You can file your excise tax return online through the IRS website.
Finally, when filing your excise tax return, it is also important to remember that you will need to pay any taxes owed. You may be subject to interest and penalties if you do not pay your taxes in full.
The IRS offers a few payment options for taxpayers who owe excise taxes. These options include electronic funds transfer, credit or debit card, and check or money order.
Tax paid by electronic funds transfer (EFT) can be made using the Electronic Federal Tax Payment System (EFTPS). EFTPS is a free service that is available to all taxpayers.
Individual Income tax return:
You must use Form 720 to file your excise tax return if you are an individual taxpayer. You can find this form on the IRS website. When filing your return, you must include all of your supporting documentation. This documentation includes receipts, invoices, and other records showing the amount of taxes you owe. You may be subject to interest and penalties if you do not have all the required documentation. Therefore, it is essential to ensure that you have all the necessary documentation before you file your return.
5. What are some common mistakes made when filing an excise tax return?
One of the most common mistakes when filing an excise tax return is failing to include all required documentation. As mentioned earlier, your supporting documentation includes receipts, invoices, and other records showing the amount of taxes you owe. You may be subject to interest and penalties if you do not have all the required documentation.
Conclusion
By following these tips, you can ensure that you file your excise tax return correctly and avoid any penalties or interest charges. If you have any questions about your excise taxes, it is always best to speak with a tax professional. They will be able to help you determine what deductions and credits you are eligible for and ensure that you file your return correctly.
Excise taxes can be complex, but with the help of a tax professional, you can ensure that you comply with the law. Here are some of the best small business solutions available at EdFed. It’s time you took advantage!
