Telephone Excise Tax Standard Amounts

Alternative Telephone Excise Tax Formula for Businesses

Previously we have sent out two emails on the refund of the Federal Telephone excise tax – one on the refund’s existence and one on the standard amounts for individuals. Now IRS has released a formula which businesses can choose to use if they desire.

As an alternative to computing the actual excess Federal excise tax, businesses and tax-exempts can use the following formula to estimate the amount:

Divide the Federal excise tax shown on the April 2006 telephone bill by the total of the April 2006 bill to arrive at the “new” percentage. Divide the Federal excise tax shown on the September 2006 telephone bill by the total of the September 2006 bill to arrive at the “old” percentage. The difference between these two percentages is multiplied by the total telephone service invoices for the period after February 28, 2003 and before August 1, 2006. This is the tentative tax deemed paid under this estimated method.

There is also a cap on this tentative estimated tax. If the business has 250 or fewer employees, the refund is capped at 2% of the total telephone expenses. If the business has more than 250 employees, the refund is capped at 1% of the total telephone expenses.

For example: Emma Corporation has 250 or fewer employees. It has an April 2006 telephone bill of $1,000, which includes Federal telephone excise tax of $28, therefore the tax percentage is 2.8%. The September 2006 telephone bill is $1,100 and includes Federal telephone excise tax of $16.50, therefore the tax percentage is 1.5%. Emma Corporation’s long distance excise tax percentage is 1.3% (2.8% - 1.5%). Emma Corporation’s bills for the 41-month period starting after February 28, 2003, and ending before August 1, 2006 total $40,000. This gives Emma Corporation a formula estimated telephone tax credit of $520 to claim on its 2006 tax return. (Instead of using this amount Emma Corporation could use the actual amount paid in connection with improperly charged services.)

Individuals with Schedules C, E, or F are divided into two groups: those with gross income of $25,000 or less and those with over $25,000 of gross income. Those with gross income of $25,000 or less may use the standard amounts or request a refund based on their actual costs. Those with gross income over $25,000 have three options:

1) Claim the standard amount (which includes both the personal and business taxes),

2) Claim the actual amounts paid for both the personal and business taxes, or

3) Claim the formula for the business taxes and the actual for the personal taxes.

A copy of the IRS news release can also be found at www.irs.gov/pub/ by clicking on irs-news and then on IR-06-179. We can also send you a pdf copy of the news release.

Need help with a Federal tax issue? David & Mary offer a fee based consulting services.

This text has been shared with you courtesy of: David & Mary Mellem, EAs & Ashwaubenon Tax Professionals, 920-496-1065 (fax 920-496-9111) , , , and

©2006 Ashwaubenon Tax Professionals. No reproduction of this article is permitted without the express consent of Ashwaubenon Tax Professionals, 2140 Holmgren Way, Suite 1040, Green Bay, WI 54304.

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