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Taking care of business: Estimate your telephone-tax refund

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Hold the phone! The IRS has devised a simplified way for your business to estimate the amount of the telephone-tax refund due on its 2006 return.

Strategy: Use the new IRS-approved formula available to companies of all sizes. (IRS News Release IR-2006-179)

Last year, the IRS finally conceded that the federal telephone excise tax should not apply to long-distance charges. (IRS Notice 2006-50) Accordingly, it offered to provide credits or refunds for amounts billed to taxpayers for the 41-month period between Feb. 28, 2003, and Aug. 1, 2006 (see the 10/2/06 issue).

How it works: You can estimate your company’s refund by using two telephone bills to determine the percentage of wrongly charged taxes on long-distance charges.

Four steps in the process:
  1. Divide the amount of the federal telephone-excise tax on your April 2006 telephone bill (which includes both long-distance and local charges) by the total bill amount. That gives you the percentage of the bill attributable to the telephone tax.

    Example: Suppose your April 2006 telephone bill totals $1,000, and your business paid $28 in telephone tax.

    Dividing $1,000 by $28 equals 2.8 percent.

    Tip: You don’t have to separate long-distance tax from local-service tax. If you have more than one type of service or provider, combine all bills with an April 2006 statement date.

  2. Divide the amount of the federal telephone excise tax that appears on your September 2006 bill (which includes taxes on only local charges) by the amount of the total bill.

    Example: Your September 2006 telephone bill totals $1,100, and your business paid $16.50 in telephone tax. Dividing $16.50 by $1,100 equals 1.5 percent.

  3. Subtract the second percentage from the first percentage. The result represents the estimated percentage for wrongly charged long-distance tax charges.

    Example: Subtract the 1.5 percent figure from 2.8 percent. The result (1.3 percent) is your long-distance percentage tax.

  4. Multiply that percentage by the total telephone expenses for the 41-month period. That’s your company’s estimated refund amount.

    Example: Say your telephone expenses for the 41-month period total $50,000. Multiplying $50,000 by 1.3 percent equals a $650 refund.
Key point: The refund is capped at 2 percent of total telephone expenses for businesses with 250 or fewer employees; 1 percent for those with more than 250 employees.

Your business can use the new formula even if it didn’t operate during the entire 41-month period. But you can request a refund only for those months it actually operated.

Note that using the formula is optional. Any business can request a refund based on the actual amount of long-distance tax paid during the specified 41-month period.

Tip: To request a refund, use new Form 8913 (Credit for Telephone Excise Tax Paid), available at www.irs.gov/pub/irs-pdf/f8913.pdf.

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