As every businessman and most Americans probably know, the 2017 Tax Cuts and Jobs Act (TCJA) made sweeping changes to the U.S. Tax Code. This act made extensive taxation changes that affect individuals and businesses. Included were corporate tax rates, business meals deductions and changes to excise taxes, among many others. Rates and requirements for many of the taxable categories were changed or updated by the TCJA.
What are Excise Taxes and How do They Work?
Excise taxes are taxes levied against specific goods, activities, and services, and can be legislated by all levels of government, federal, state and local. Excise taxes are usually passed on to consumers in the normal course of business, such as in the prices for motor fuels, alcohol and cigarettes. The cost of the tax may not even be known unless posted for the consumer.
Excise taxes are different from sales tax in that they apply only to specific items or services while sales taxes are applied to generally everything.
Businesses pay excise taxes on:
- Fuels used in business (different rates apply to diesel, gasoline, and gasohol)
- Purchase of trucks, trailers, and semi-trailers
- Coal and taxable tires
- Ozone-depleting chemicals and environmental products
- Tanning salon services
- Manufacture, production or import of alcoholic beverages, tobacco products or firearms
- Air transportation and aircraft management services
- Telephone and communications services
- Retirement accounts
These taxes also apply to the following (some you may be surprised):
- Ship passenger tax
- Sportfishing equipment, including fishing rods, poles, and outboard motors
- Bows and arrows
How to Report and Pay Excise Taxes
Form 720, the Quarterly Federal Excise Tax Return, is used to report the excise taxes collected by the business. It includes several pages of excise taxes that your business might have to pay, along with the applicable rates. Form 720 is due quarterly, one month after the end of the calendar quarter.
Federal excise taxes are considered a “trust fund tax” meaning that they are collected and held by the business “in trust,” then paid to the IRS quarterly. Even if somehow a business forgets to collect an excise tax, it must still be paid to the IRS. If the full amount of taxes due is not paid at the quarterly periods, a recovery penalty may be required.
Businesses need to keep careful track of the appropriate and relevant production and sales data, excise taxes collected from customers and any excise taxes paid to government entities, in order to facilitate proper reporting and timely filing.
Seek Expert Accounting and Tax Assistance
Don’t try to navigate the complicated tax rules alone. Contact Estess CPAs, based out of New Orleans and serving the greater New Orleans, LA area, for the professional assistance you need to succeed. Estess CPAs specializes in serving the needs of small businesses with professional accounting and bookkeeping services. We are a full-service tax office, providing comprehensive tax planning and preparation of all tax returns.