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February 2007 — Vol. 85, No. 1
SMALL BUSINESS
2006 federal tax filing tip
Taxpayers can claim refund
of long-distance phone tax
The Internal Revenue Service has created a formula businesses can use to claim the refund of the federal telephone excise tax on long-distance telephone service.
The government stopped collecting that tax last August. Taxpayers can file for refunds of all excise tax they paid on long-distance land line, cell phone and Internet phone service billed to them after Feb. 28, 2003. Interest will be paid on these refunds.
To request a refund, businesses —including sole proprietors, corporations and partnerships — must complete Form 8913, Credit for Federal Telephone Excise Tax Paid. To complete this form, you can either determine the actual amount of long-distance telephone excise taxes your company paid from March 2003 through July 2006, or use the IRS formula. You should attach Form 8913 to your regular 2006 income tax return.
How to figure refund amount
According to the IRS, a business can figure its refund amount by comparing two telephone bills from this year to determine the percentage of its telephone expenses attributable to the long-distance excise tax. You should use the bill with a statement date in April 2006 and the one with a statement date in September 2006. First figure the telephone tax as a percentage of your April 2006 telephone bill (which included the excise tax for both local and long-distance service) and your September 2006 telephone bill (which only included the tax on local service). The difference between these two percentages should then be applied to the quarterly or annual telephone expenses to determine the amount of your refund.
The refund is capped at 2% of the total telephone expenses for businesses and tax-exempt organizations with 250 or fewer employees. The refund is capped at 1% for those with more than 250 employees.
For example, if you have an April 2006 telephone bill of $1,000, which includes federal telephone excise tax of $28, the tax percentage is 2.8%. If the September 2006 bill is $1,100 including federal telephone excise tax of $16.50, the tax percentage is 1.5%. Your long-distance excise tax percentage is 1.3% (2.8% for April minus 1.5% for September). Multi-ply 1.3% by your total phone expenses over the 41-month period to arrive at the amount of your refund. If you had more than 250 employees, your refund would be limited to 1% of your total phone expenses for the period. If you had 250 or fewer employees, the 2% cap would apply and would not limit the amount of the refund.
Individual taxpayers have the option of using standard amounts based on the number of exemptions allowed to that taxpayer. Individual taxpayers can request a $30 refund with one exemption, $40 for two exemptions, $50 for three exemptions, and $60 for four or more exemptions.
Options for requesting this refund vary for sole proprietors, who file a Schedule C with the Form 1040, depending on the gross income reported on the Schedule C. Sole proprietors who report gross income of $25,000 or less on Schedule C may use the standard amounts or request a refund based on their actual expenses. Sole proprietors reporting more than $25,000 of gross income have three options:
- Use the standard amounts, which cover both personal and business expenses,
- Use the formula for their business expenses and actual for their personal ones, or
- Use actual amounts for both business and personal.
Similar rules depending on the amount of gross income reported on Schedule F or Schedule E apply to farmers and individual owners of rental property.
Details on the telephone tax refund will be included in 2006 tax return materials and are available on the IRS Web site.
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